BOSTON—Pillar Hotels and Resorts is ready to move into the next phase and become a part owner in some of the hotels it manages.
The Irving, Texas-based company, which was acquired in 2011 by Monroe, Louisiana-based InterMountain Management from Archon Group, is seeking sliver-equity positions in hotels as it looks to grow its portfolio of 213 managed hotels comprising approximately 21,000 guestrooms.
“Pillar is probably the largest hotel management company you’ve never heard of,” said Rick Frank, who was hired as the company’s chief investment officer earlier this year.
Frank said during a break at last month’s Hotel Equity and Lender Perspectives Conference in Boston that the company is open to being part of an acquisition of hotels in its current portfolio. Most of that portfolio consists of properties owned by Archon, which is an affiliate of Goldman Sachs.
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Rick Frank Pillar Hotels and Resorts |
He is tasked with expanding the platform by acquisitions and by looking for management contracts—one-off hotels or large portfolios. Part of that acquisition process is to piece together equity for such transactions.
“We’re looking at acquisitions,” Frank said. “We have the ability to provide sliver equity and in some cases we have existing partners where we can provide a major part of the equity in acquisitions.”
Frank said that despite its global nature, the hotel industry is a local business, and that’s the emphasis Pillar will put on its acquisition and growth process.
“When I underwrite hotels it’s important to understand what’s happening in that city, in that part of that city, on that corner,” Frank said. “The long and short of it is that we analyze globally, but we underwrite locally.”
It’s just as important to look at what the fundamentals will be in the future as it is to know the current situation, he said.
“We’re very focused on the exit,” he said. “Before we enter a market, before we enter a deal, what’s the strength of the market? What would be the strength of the market three, five, seven years hence? That comes into play on the branding equation, too.”
Existing assets are targets
Potentially being part of a group that buys Archon assets is a definite part of the plan.
“When they make the decision to divest, I need to make sure that we’re prepared to potentially be the acquirer of those, so I’m constantly on the hunt for equity partners,” Frank said.
He said the company’s portfolio runs the gamut in terms of the age of properties—including some that are Gen 1 and Gen 2 hotels for various brands. Many of them joined the portfolio after Goldman Sachs’ acquisitions from Whitehall Street Real Estate Funds and Tharaldson Companies. He said those properties have been maintained well and they shouldn’t scare any potential investors.
“We have an in-house construction management company that does a great job keeping up with the (property-improvement plan) requirements, the refreshes, the new initiatives,” Frank said.
Another primary way for Pillar to gain a foothold in the acquisition side of the business is through its existing infrastructure. Frank said he wants to tap into the knowledge of Pillar’s approximately 6,000 employees when searching for acquisition targets.
“Who knows better about what’s happening in a market than somebody who’s operating a hotel in that market?” Frank said. “They can look at their competitive set. They know when a hotel is maybe deteriorating on the quality side, whether they’re due for a brand-mandated refresh but they’ve been putting it off for years or months. It’s sort of an opportunity for me and my acquisitions team to uncover a hotel just prior to it being publically marketed.”
Frank declined to put a number to the desired amount of properties Pillar wants to have in its portfolio, whether it be managed or owned.
“I have a responsibility to keep the size consistent so we can provide career opportunities for our current employees,” Frank said. “I’m constantly looking just to expand our current footprint.”
Frank’s 35-year career has had stops at ITT Sheraton, AEW, Olympus Real Estate Partners and Behringer Harvard.
“The cost of capital is low, the economy is getting better … the supply/demand equation is working in the favor of strong fundamentals,” Frank said. “I’m incredibly optimistic that we’ll be able to increase the platform again through accretive management contracts, joint ventures, large portfolios. I think that Pillar is just positioned perfectly to take advantage of this next economic upswing.”