LOS ANGELES—Rim Hospitality’s position under the Interstate Hotels & Resorts umbrella has proven to be a beneficial location for the Newport Beach, California-based business unit, according to Mark LeBlanc, executive VP of business development.
Officially known as Interstate’s Rim Hospitality Division since the July 2014 acquisition, the unit is taking advantage of having Interstate’s infrastructure at its disposal while also bringing a unique mindset to the parent company, according to LeBlanc.
“It’s a management company geared to private equity with the benefits of having a big company behind it,” LeBlanc said during a break at the recent Meet the Money Conference.
A wide net for cross-system comparisons on costs and operational issues makes underwriting opportunities more credible and available since the acquisition, LeBlanc said.
“We’ve got to add value,” he said, adding that Rim is emphasizing growth in the e-commerce arena. “We’re still a small company under a big umbrella that focuses on adding value.”
Rim will sign performance-based management contracts based on gross operating profit—a unique approach that was attractive to Interstate, according to LeBlanc.
“They bought us because we are creative and do different things,” he said. “That allows us to put skin in the game without diluting their equity of any kind.”
With 71 hotels comprising 11,317 rooms in the division’s portfolio, it melds well with the overall roster of hotels in Interstate’s system, the executive said. Arlington, Virginia-based Interstate has more than 450 hotels comprising more than 81,000 rooms in its global portfolio. Rim has six hotels comprising approximately 900 guestrooms in its pipeline.
A melting pot
It’s what Rim brings to the system that sets it apart, LeBlanc said.
“Their whole reason for buying us was our client base was significantly different,” he said. “We have some institutional money, but not a lot. Our model was guys with five or 10 hotels.”
A West Coast platform with a different type of client base has proven to be a good mix with the Interstate culture, LeBlanc said.
“We didn’t want to be absorbed into Interstate and have no identity,” LeBlanc said. “My ownership groups I work with are the same guys I called before; we just have a lot more tools at our disposal.
“Most of the Newport office doesn’t feel we lost our identity,” he added. “Interstate has done everything they said they would do. The focus remains owner-driven.”
LeBlanc cited things such as more robust purchasing and insurance programs as big differences.
Rim is able to leverage Interstate’s financial platform to joint venture on projects, according to LeBlanc.
“As Rim, we did it selectively … one or two a year,” LeBlanc said. “Now I can do one or two a month with Interstate. They’re very happy to put out capital.”
LeBlanc said Rim’s equity participant can be in many forms, including key money deals that burn off over the life of the contract.
“Since July we’ve done 10 deals, and we contributed equity in six or seven of those—all with existing partners,” LeBlanc said. “We always look at organic growth as a primary way to expand. We’re looking to take existing owners and expand their platforms.”
LeBlanc said keeping those clients focused on the best assets in the current economic environment when there are so many properties on the market is a key step to a successful acquisition.
“They have us a working on a deal and they call me the next day to tell us about another great deal,” he said. “We have criteria for every existing owner and what they’re looking for and what their capabilities are. When we see something that matches, we can act quickly.”
Although the group is primarily focused on West Coast deals, it will look beyond those boundaries depending on where its roster of clients wants to expand.
“We’ll go anywhere our owners go,” LeBlanc said. “And we’re looking for new ownership groups anywhere.”
One advantage to being under the Interstate canopy is more accessibility to pre-market deals, according to LeBlanc.
“Our owners can do a bid, get ahead of the race so to speak and write a much tighter offer,” LeBlanc said. “It’s very competitive out there, so being ready when a property is taken to market allows us to go strong on Day One.
“Sellers right now want a certainty to closing,” he added. “If you can do that you have a lot better chance of getting the money.”