NEW YORK—Marcel Verbaas has a clear vision for the direction of Inland American Lodging Advisor: up.
During an interview at the 35th Annual New York University International Hospitality Industry Investment Conference, Verbaas, the president and CEO of the Orlando, Florida-based group, said the company is an acquirer more than a developer—although it will look at building hotels under the right conditions—and its long-term hold strategy works well for most of its assets.
“I don’t think you’ll see us buying the true luxury resorts and the luxury $400-, $500-million investments,” he said. “We target specific investments in specific markets where we feel you can still invest below replacement cost and your long-term valuation number makes sense.”
Inland American owns 90 hotels and is set to acquire three more in the near future. Verbaas declined to provide details about the pending acquisitions. As of 31 March, parent company Inland American Real Estate Trust owned 759 real estate properties, including 16,407 hotel rooms.
The parent company, which is a private company, likes to leverage its holdings to place capital where it’s most beneficial, Verbaas said.
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Marcel Verbaas Inland American Lodging Advisor |
“What we’re doing now primarily is recycling capital and it’s a little bit of recycling within our portfolio,” he said. “But it’s also recycling within Inland American overall, which means we’re selling similar asset types, like we sold some multifamily assets, some retail, primarily bank branches, things like that. That creates the kind of capital we can reinvest in our space.”
Inland American is trying to add more upper-end hotels and diminish its holds in middle-tier hotels.
“We’ve sold assets primarily in the midscale segments so we’re almost exclusively invested in upscale, upper-upscale and some luxury assets right now,” Verbaas said. “We want to be in assets we think are good, viable locations long term.”
Specific targets
Although Inland American is interested in second-tier markets because he believes “longer-term people will start investing in those markets much more heavily than they have in the last few years,” the company still has its eye on the gateway markets.
For instance, in March 2012, it acquired the 685-room Marriott San Francisco Airport Waterfront Hotel from Host Hotels & Resorts for $108 million.
“That’s been a great buy for us. It’s been very strong yields,” Verbaas said. “You’re benefitting from all the positives in those markets but you’re able to get in at a yield that makes sense for us.”
Verbaas also pointed to the company’s March 2013 $53-million acquisition of the 159-room Andaz San Diego from Kelly Capital Corporation as a good indicator of the types of deals it is looking for.
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Owned by Inland American, the Grand Bohemian in Orlando, Florida, is part of Marriott International’s Autograph Collection. |
“The Andaz is a great example of what the customer will be demanding over the next cycle,” Verbaas said. “You’ve got a real shift coming up between the baby-boomer generation and (Generation) X, which is getting up there in age as well, but it’s the millennials that people are looking for, and we think people are looking for those kind of experiences like that we can provide at the Andaz San Diego.”
Another big deal for the company was the acquisition of three hotels from The Kessler Collection in December 2012.
Cycle talk
Verbaas is bullish that the industry’s upswing is far from over.
“There is a lot of run room still in this cycle,” he said. “Demand has always been there, but what messes the industry up longer term is what happens on the supply side, so we obviously hope it stays muted.”
However, Verbaas admitted it’s contradictory to be concerned about supply growth while at the same time considering building hotels. But that’s exactly the conundrum Inland American faces.
“We are looking at some potential development to be in the type of market where we feel that it is the right type of asset to put in this market and it can be absorbed and it’s the right play,” he said. “We’re very focused on yield so if we can sprinkle in a few developments we will do so, but we will be much more of an acquirer than a developer.”