REPORT FROM THE U.S.—David Schwartz, CEO, chairman and co-founder of Chicago-based Waterton, said he knew his company had to do something to unlock the full potential of its hospitality division. He believes his company did just that by merging its hotel portfolio with Waterford Hotel Group.
Schwartz said Waterton, a real estate investment and management firm that focuses primarily on multifamily units, believes in a vertically integrated model, and Waterford’s operational expertise will help take that to the next level.
“We’re very excited to have Waterford and our combined teams managing the properties,” he said. “We now have a much deeper bench and will be able to create a lot of value with this new arrangement.”
Len Wolman, CEO of Waterford Hotel Group, a Waterford, Connecticut-based development and management company, said his company is always “looking for opportunities to grow,” and meeting with Waterton officials made it clear that these companies were compatible.
“It became clear to us that many of our goals, our philosophy, our organization and cultures very much aligned,” he said.
No financial terms were announced in the deal, although Wolman said the structure of the deal creates a new entity, Waterford LLC, of which Waterford Hotel Group is a majority shareholder and Waterton is the minority shareholder.
But Schwartz and Wolman pointed to the larger scale of their combined platforms, now with 41 hotels and roughly 6,200 rooms across nine states, as a large reason for the deal’s potential success.
“This gives us much bigger scale in purchasing power and relationships with brands,” Wolman said. “Hopefully we’ll have opportunities because of our presence and portfolio to acquire more assets.”
He said Waterton’s greater access to capital will enable more deals for the combined entity. Schwartz agreed.
“This has doubled our horsepower in terms of the investment team,” Schwartz said.
How it came together
Schwartz said the deal with Waterford came about after a monthslong process of looking for companies that could help grow Waterton’s hotel platform either through acquisition or merger. Near the end of that process, executives at investment firm RobertDouglas, which advised both parties in the deal, suggested Waterton officials take a look at Waterford.
“After meeting with so many companies’ teams and principals, it was clear this was the best culture and fit with our vertically integrated investment management thesis,” he said.
Officials from both sides see their strengths and portfolios as complementary—Waterton historically having more of a presence in the Midwest U.S. and the West Coast, and Waterford more prevalent on the East Coast.
Ultimately, Wolman believes the deal will pay dividends not just to owners and investors but also the company’s more than 2,500 employees.
“We’ll have the ability to offer more opportunities for our associates to grow their careers and realize their personal and professional goals,” he said.
Preparing for the future, but willing to deal now
Schwartz said the widely held belief that the hotel industry is nearing the end of its current revenue-per-available-room growth cycle makes it more difficult to get deals done to further expand the newly merged hotels platform. But the timing of the merger will better position the company for the next cycle, he said.
“We’re well-prepared and ready for when the cycle turns and there are likely more investment opportunities,” he said, noting the company is looking for opportunities to reposition assets strategically. “Hopefully, we’ll be a significant force.”
Wolman said the companies aren’t just going to sit and wait for the end of the cycle, either. While there might be greater potential for deals in the future, the company also will be active in growing immediately, he said.
“This doesn’t mean we aren’t continuing to look at deals,” he said. “And the most important thing is we want to take care of existing owners at existing properties. We want to maximize value and take care of those properties and position them correctly.”
Both executives said they’re hopeful this deal will enable them to grow across the U.S. with teams in both Chicago and Connecticut focused on getting deals done.
“I think we cover a pretty broad geography, and we’d like to fill in some of the gaps,” Wolman said. “If we can find a large-enough portfolio, we’d like to expand even further with a focus on premium brands.”
Deals will include buying and developing hotels, as well as third-party management contracts and sliver equity deals, Wolman said.