A Chicago-based hotel owner and developer and a New York-based developer and owner of commercial real estate are joining up to invest $1 billion in upscale and luxury hospitality properties.
First Hospitality and The Georgetown Company say they formed their new investing platform to take advantage of what they see as significant long-term growth potential in an industry now beginning to recover from the effects of the coronavirus pandemic.
"We know that hospitality assets will inevitably see a strong rebound in the years following the pandemic, ultimately creating significant value for investors," Adam Flatto, CEO of The Georgetown Company, said in the companies’ Sept. 28 announcement.
Georgetown’s stake in First Hospitality will guide future buys
Manhattan-based Georgetown -- which also has offices in Los Angeles, Atlanta, Washington, D.C., and Columbus, Ohio -- was founded in 1978 and is a developer, owner, and manager of office, residential, retail, and recreational properties with current assets under control worth more than $3 billion.
The deal calls for Georgetown to take an ownership stake in 35-year-old First Hospitality and use its own "experience and deep relationships to source and identify leading hospitality properties along with First Hospitality’s best in class hotel management expertise," the announcement says.
"What attracted us to First Hospitality is that at the moment, they are involved in about 50 hotels around the country. They are involved in investments in about half and third-party manage the other half," Georgetown’s Michael Fishbin told CoStar News. Fishbin joined Georgetown in February 2020 as managing director and head of hospitality to grow the company’s portfolio.
Private capital seeking undervalued properties while a market shows signs of life
The idea here is to use investor capital in the private platform to find and buy undervalued properties using Georgetown’s sourcing skills and First Hospitality’s management expertise.
The time seems ripe. Fishbin pointed to the sale of The Cosmopolitan in Las Vegas as just one example of an industry now ready to attract new investor attention, but that the payoff may take some time.
"We are looking at a longer recovery curve -- broadly, three to four years around the country. The upscale to luxury [sector] provides positioning, in terms of chain scale, and it also works well with our longer-term investment horizon," Fishbin told CoStar News.
The Millionacres bottom line
Here at Millionacres, we primarily cover publicly traded real estate stocks that provide investors easy entry into segments like hospitality, especially real estate investment trusts (REITs), but the activities of experienced private investors always bear watching.
They have dominant money involved, the wherewithal to spot trends early and hang on to troubled properties without explaining themselves publicly to shareholders, and up-close-and-personal responsibility to many of their private investors. Typically this kind of real estate investment isn’t as liquid, either, not like publicly traded stocks, so there's even more pressure to get it right, perhaps.
So, while $1 billion isn’t all that much when it comes to buying the big luxury hotels and resorts, it can go a long way toward buying multiple smaller properties in a down market, it would seem. (Check out this Millionacres article on how much it costs to build one of your own.) It’ll be interesting to see where Georgetown and First Hospitality decide to commit their new nest egg.