Posted 11/7/2008 - 3:11:45 PM
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What are these?
If Mit Shah, senior managing director and CEO of Noble Investment Group, has a feeling of déja vu regarding the current volatility in the economic markets, he has a right to. Some 15 years ago the lodging industry was in the throes of similar—albeit not as egregious—economic turmoil. But then, as now, the executive saw opportunity. And so it was in 1993 that the privately-held Noble Investment Group came into existence.
“In the parallel to right now, there’s a lot of similarities and there’s some real dissimilarities,” said Shah. “We never saw the kind of credit crisis that we’re in right now, where basically credit is not available at all across any kind of stream. There’s real paralysis that’s occurred. We’ve never seen in our lifetime the kind of market volatility that we’ve seen over the past [several] weeks. It’s been fascinating and disturbing to watch all at the same time. So that’s kind of different. The similarities are the fear and the panic that leads to the crisis and, therefore, leads to potential opportunities for an owner in this market where liquidity and capital are at a premium.”
Shah said key factors in weathering cyclical downturns, such as in 1991 and 1992, 2000 and 2001 and now, include having a stable organization that allows management to “keep things going when everything around you looks very, very problematic” and having capital and liquidity “that allows you to take advantage of opportunities that come out of the crisis.”
Right now, Noble has that type of financial clout in the form of a $310-million equity real estate fund. Noble Hospitality Fund, LLC, theoretically gives the company $1 billion in buying power.
“In August of this year, we were a year-and-a-half through a three-year capital commitment and we were only 25% committed. We didn’t have a whole lot in our pipeline because we just weren’t seeing great opportunities. Well, it was that old adage: be careful what you wish for because you may get it. So now we’re sitting here and we’ve got this huge war chest of capital to go out and deploy and I’m so thankful that we didn’t see opportunities during the summer because in all likelihood, given where we thought the markets were heading, we probably would have started incubating a lot more,” said Shah.
That’s a sobering thought considering the company’s principals co-invest their own capital along with investors into the equity funds.
Now, said Shah, there are a number of opportunities in the market that are not distressed but are what he terms “dislocated”—assets that have debt coming due or that the investor thought 30% equity would be the get in and now it’s 50% or assets needed to be sold to raise cash. “We’re waiting for distressed,” emphasized Shah.
Still, Noble has been busy during the past six months in terms of development, acquisitions, renovations and management. Plus, Shah noted, even in a tough capital market the company has done approximately $150 million in financing.
In late May it opened the 466-room W Atlanta Midtown, which it developed and owns in a joint venture with AEW Capital Management. A month later, Noble began a $6.5-million renovation in Alabama of the 25-year-old Hilton Birmingham Perimeter Park in Birmingham, AL. The just-completed renovation included upgrades to all 205 guestrooms, the concierge and executive levels and 10,000 square feet of event and meeting space.
In July, Noble acquired the 244-room Hyatt Regency Valencia, which is part of the Valencia Town Center in Valencia, CA, a one-million-square-foot, mixed-use development. The hotel, which Noble is operating, also encompasses the 16,000-square-foot Santa Clarita Conference Center. The purchase was the 12th acquisition via the equity real estate fund.
Noble owns and operates 11 Hyatt products: four Hyatt Regency and seven Hyatt Place hotels. And, in early October, Noble opened the 127-room Hyatt Place Schaumberg/Chicago in Illinois.
In North Carolina in late August, Noble opened the 16-story, 400-room Raleigh Marriott City Center, which is attached to the new 500,000-square-foot Raleigh Convention Center. Both components are part of a dining and entertainment district within a $1-billion renaissance of Raleigh’s city center.
And just last week, Noble began operating the new Aloft Charlotte Uptown in Charlotte, NC, which is part of a vertically integrated project with office and retail components in the new $275-million Epicenter complex. And on the same day, it opened the W Buckhead in Atlanta.
Shah noted that at the start of 2008 there was a slowdown in the capital markets, but, at the time, he felt the residential crisis driven by the sub-prime debacle wasn’t having a real effect on lodging.
“We knew we weren’t going to have the 6% RevPAR growth we had had in years past, but I think the consensus was that it would be flat to plus-two to -three percent, and the first quarter indicated that was pretty much happening,” said Shah. “We weren’t going to discount because of our strength in revenue management across the industry, which was vastly different than what it was in 2001 and 2002, and it was non-existent in 1991 and 1992. We thought things were good.”
The executive recalled how right after the New York University International Hospitality Industry Investment Conference in early June of this year—with the vacation season about to kick in—gasoline prices escalated, as did basics such as milk.
“We thought, ‘Wow. This is very unique. And consumers absolutely shut down from a leisure standpoint. We saw it almost immediately. Confidence started waning dramatically. We knew we were into a situation that was going to be a lot more negative than what we thought at the beginning of the year,” said Shah.
Shah meets frequently with his executive team and runs data on key metrics that affect Noble. And while much effort is put behind having the right staff members and customer-relationship programs in place, Shah said, “On the financial side, at the end of the day, it’s all about market share and profit margins.”
Toward that end the group this summer concentrated on how it would continue to grow market share in a volatile marketplace and how it would wrangle profit margins with the expectation that business travel would pick up by autumn. And then the markets tanked. And then the government stepped in.
“So the reality is, nobody knows what that effect is going to be on our business, other than the fact that it’s going to be bad,” said Shah.
Shah added group business pick up “has been very bleak. Of groups that we had as tentatives, very few have converted over to definite. And the pace? How do you make a decision that you’re going to have a big group meeting in March of next year? We don’t even know what the next hour on the stock market is going to do relative to where bottom is.
“Nobody knows other than economically it’s going to be really, really bad in fourth quarter this year and pretty much all of next year if not longer. But thank goodness we built the organization that we did,” added Shah, who, after the downturn earlier this decade, said he would never go through a cycle where his operating organization has to rely on others.
“You can’t control the market economy,” Shah asserted. “You can control what you do.”
