MDH will target assets that have CMBS debt coming due and franchise-required PIP’s that will not be meet by the current ownership, creating a pressured selling environment and an Opportunistic Buying Opportunity for MDH. The Managers will—on a disciplined basis—utilize their knowledge of real estate and Hotel Operations to focus on opportunities that blend near-term return opportunities provided by existing assets with select ground-up opportunities that create value but take longer to realize returns to the Fund or individual assets.
The real estate model will be one that directs its focus on existing properties where value can be added, but that are below the radar or desire of large institutional or Wall Street buyers on a single asset basis. The typical asset would be a minimum size of 50 keys, ranging upward to 500 keys, with a value of $4 to 50MM. The Venture will seek middle market hotels such as Hampton Inns, Holiday Inns, Best Westerns and similar middle-tier flags of the upper-end brands such as Spring Hill Suites. In this market, there’s less yield compression than in the top-tier sector, similar to what is now occurring with up-branded Hilton and Marriott products. We will seek opportunities in this sector where we can add value through implementing renovations, product improvement plans, and overall operating efficiencies and revenue growth. Where the demand and opportunity warrant, MDH will build from the ground up or convert non-Hospitality Real Estate into hotels.
It is our firm belief that by diversifying our portfolio across various brands’ levels that MDH will mitigate the downside risk potential while increasing the opportunity for yields over our targeted yield structure.
In summary, our strategy will be one of buying at a pricing level where we can create value by enhancing the net operating efficiencies and exit at the appropriate time. To a lesser extent, MDH will selectively develop or convert where the opportunities with demand generators make a compelling case.