Pacifica Hotels CEO Matt Marquis said his company, which owns and operates boutique hotels along the Pacific Coast, is taking a contrarian approach with deals in the near term.
Despite urban city locations lagging leisure travel-centric destinations in the recovery from the pandemic, Marquis said Pacifica has an appetite for urban markets such as Seattle, Portland and Denver that have been slower to recapture demand.
"Some of these overheated markets, we're kind of staying away from," he said. "There's two schools of thought, some people that are doubling down on the hot markets thinking that's a trend that is going to continue to go. We're looking at [an opportunistic investment approach] wherever we think there's really good value."
San Francisco's hotel market has been among the slowest to recover, but Marquis said a friend recently contacted him about an opportunity to operate a hotel there.
"We've made runs at things inside the city but we haven't really operated in downtown San Francisco for a while. We might be taking over an asset in [the first or second quarter] of next year," Marquis said.
According to data from STR, CoStar's hospitality analytics firm, occupancy in the San Francisco market for the week ending Dec. 3 was down 31 percentage points from the same week in 2019. This is the largest deficit among the top 25 U.S. hotel markets.
Marquis said he is optimistic about San Francisco partly because hotel valuations have not gone down despite lagging performance. He added hotels hitting the market in San Francisco haven't been discounted as much as in past downturns.
Hotel Vintage Portland Deal
In September, Pacifica purchased the 117-room Kimpton Hotel Vintage Portland in Oregon for $32.9 million from real estate investment trust Pebblebrook Hotel Trust.
Marquis said Pacifica "bought that at 60% of what the high-water mark was for value in that market."
Portland was a market Pacifica was eager to enter even before the pandemic, but the numbers didn't make sense then, he said.
"We didn't want to risk going into a new market at very high numbers," Marquis said.
Pacifica is now looking at additional deals in Seattle. The company's portfolio consists of 34 independent and flagged hotels, with a majority in California and a few in Hawaii.
He said 2022 has been a record year in profitability and top-line growth across the company's hotels.
"Now there have been a lot of escalations in labor, cost of materials and supply chains that have eroded some of that top-line growth, but top-line growth is so strong that it's still record profitability numbers for most of our assets," he added.
Debt Market
Strong hotel industry fundamentals are fostering a robust transactions environment, Marquis said.
"There are people that are coming up on debt maturity and they don't have much equity in the deal. There's not a lot of people that really want to roll out of a maturity and infuse another 25% into the asset," he said. "I think a lot of people will either try and sell at best possible pricing or they'll just want to get out from under the debt."
Renovations
Pacifica recently completed the renovation of its 148-room Seacliff Inn Aptos in Aptos, California, branding it under Hilton's Tapestry Collection.
At the onset of the renovation, Marquis' team "thought they'd see some loosening of pricing but the problem was there were no crews either," he said.
Despite that, Pacifica was able to stay close to budget on the renovation. Marquis said the hotel features a new design concept in guestrooms, lobby and corridors, and a new restaurant.
"It has this charm to it. A 10-minute walk away from the hotel [is a forest of redwood trees]. It's really a cool little asset for us," he said. "Our team did a great job of getting the best bang for our buck, doing the right things you need to do during a big renovation."
Underestimated Challenges
The execution of guest experiences is one of the most underestimated challenges hoteliers face, Marquis said.
"Are we executing our experiences in the way we did prior to the pandemic? And I think in some cases, I think we're struggling to get the same touch points of service," he said.
Many properties are struggling to meet those needs due to deferred maintenance and under-trained staff, he added. The consumer will make booking decisions based on which hotels are executing those touch points best.
Unexpected challenges are also arising from difficulties with ride-share transportation, he added.
It's an "industry that's right on the tangent of us going through their own issues. If you've tried to get an Uber lately, it's twice as much and twice as long to wait ... and that affects us. Now are people driving more to our properties?" he said.
Traveler Trends
Marquis said American travelers seem to have a heightened sense of exploration to go outside of U.S. borders, while there are fewer inbound tourists to the U.S. due to high costs.
"Asia is a big market, and I think that still continues to sputter a little bit. Europe is such a deal now with the dollar being so strong, that people are going to Europe and other countries where they buy a lot more with the dollar," he said.
Drive-to destinations across the U.S. did get some needed attention at the start of the COVID-19 pandemic.
"I do think there will continue to be an exploration with our own domestic population. In general, that nomadic nature ... people are much more interested in the experience and the journey," he said.