GLOBAL REPORT—Executives at Thayer Lodging Group plan to go big game hunting more frequently following the company’s acquisition by Toronto-based Brookfield Asset Management.
Under terms of the deal, Thayer’s investment, property and asset management businesses will operate as a subsidiary under Brookfield. Annapolis, Maryland-based Thayer will maintain ownership of its private equity funds and Thayer Ventures, the company’s venture capital arm. The price Brookfield paid to acquire Thayer in the deal, which closed last week but officially announced Wednesday, was not disclosed.
The primary benefit of coming under the Brookfield umbrella is that it provides Thayer with an additional and robust capital source, which means the company will be able to target larger, complicated, and sometimes “messy” deals that are becoming more prevalent in the hotel space, Lee Pillsbury, Thayer’s co-founder, said. During the past two decades, Thayer has completed a total of 43 investments representing a total acquisition cost of approximately $2.5 billion.
Thayer and joint-venture partner Shanghai-based Jin Jiang International Hotels in 2009 acquired Interstate Hotels & Resorts. The Brookfield deal means Thayer will have greater flexibility to go after deals in China and globally, Pillsbury said.
“It gives us a much bigger war chest with which to acquire,” he said of the Brookfield deal. In an email, Andrew Willis, senior VP of communications and media for Brookfield, referred questions to Thayer executives.
Fred Malek, also co-founder of Thayer, said the most profitable deals in Thayer’s history have been the larger ones. When the company has pursued these kinds of deals in the past, it has had to first seek out co-investors, which can have the effect of slowing down the ability to transact.
“People want to do business with someone who can close,” Malek said.
Malek and Pillsbury agreed Thayer’s transaction velocity is likely to gain momentum as a result of the Brookfield deal, though they did not specifically pinpoint how many deals might be consummated going forward.
“People who are selling or looking to transact will be more inclined to seek us out,” Malek said.
Thayer Ventures
Thayer Ventures recently closed on its second fund, a $35-million venture that is focusing on investments in early-stage companies.
Chris Hemmeter, managing director of Thayer Ventures, said the Brookfield deal has no direct impact on the venture capital provider, which operates autonomously from Thayer Lodging. Nonetheless, the deal should have a residual positive effect on Thayer Ventures.
“It can only increase the scale of Thayer’s influence and reach,” he said.
Limited hotel exposure
Brookfield, with assets under management totaling approximately $175 billion, is one of the world’s biggest property investors. But prior to its deal with Thayer, Malek said Brookfield was not heavily invested in the hotel sector, though it does have experience owning notable properties in it. For instance, Brookfield, through its debt position in the asset, took over the Atlantis resort in the Bahamas during the downturn as well as the Hard Rock Hotel in Las Vegas.
In a research note, R.W. Baird & Company analyst David Loeb said Brookfield’s acquisition is representative of growing investor interest in the hospitality space.
“We view this acquisition as a sign that more investors, both real estate-dedicated and non-dedicated funds, are looking to broaden their exposure to the sector given positive fundamentals and lower interest rate risk than other real estate sectors,” Loeb wrote. “Brookfield had minimal lodging exposure prior to this transaction, furthering our belief that lodging has become more of a ‘core’ real estate asset class today.”
Malek said the deal shows that Brookfield believes there is still a lot of life left in the hotel sector’s recovery.
“If you were in the ninth inning of a nine-inning game, you probably wouldn’t make the acquisition,” Malek said.