CHICAGO—Aries Capital LLC and Four Corners Advisors Inc. have partnered on an end-to-end hotel advisory, transaction and financing platform for hotel investors and developers across the globe. The companies are already working together on several transactions and expect to grow their respective portfolios in the next year.
“We are continuing to pursue the types of clients each of us has in the past,” said Michael Shindler, president and CEO of Four Corners Advisors. “Four Corners’ clientele has been institutional-quality real estate investors and developers who do not have (or have very little) hospitality or development expertise. Aries’ clients are both entrepreneurial and institutional clients, usually looking to put together capital for transactions in the hospitality space. Occasionally, there is overlap between those two.”
Neil Freeman, chairman and CEO of Aries Capital, and Shindler met 30 years ago on the American Youth Soccer Organization (AYSO) fields in Lincoln Park, when their children were young. Fast-forward three decades, the duo met for lunch in September to catch up. “The possibility of my moving into his space to collaborate arose,” Shindler said. Both agreed it would be best for Four Corners Advisors to move in with Aries Capital. During the first week of October, the companies began working on a transaction and scheduling calls for another.
“It was rather organic in nature, rather than strategized,” he said. “We agreed to treat our relationship as a ‘strategic alliance’ since that’s really what it is.”
Aries Capital has forged relationships with capital sources in the past, but this partnership delivers new benefits. “This relationship adds expertise in the hotel, gaming development and branding space to add a dimension to our existing clients,” Freeman said.
For Four Corners Advisors, the strategic alliance is unprecedented territory.
“This is Four Corners’ first foray into an alliance with a capital markets expert,” Shindler said. “For Four Corners, this is different due to proximity—the water cooler conversation literally can happen. We can take calls together and brainstorm without picking up a phone or walking outside.”
Prior to the alliance, Four Corners Advisors would have to seek recommendations from a commercial mortgage and real estate investment banking firm like Aries Capital. “As the usual Four Corners client was a developer doing a hotel as part of a mixed-use development or finding a need to include a hotel to benefit other components of a project with its own relationships in the capital markets, I deferred,” Shindler said. “Now, we can package our offerings or make the other’s expertise available to clients.”
The deal for Aries Capital provides an added layer of in-depth development expertise.
“The strategic alliance allows Aries Capital to get involved earlier in the development process for larger projects, typically between $30 million and $100 million or more,” Freeman said. “Michael is one of the brightest minds in the hotel and gaming industry for complex projects, and he and Four Corners can add a valuable dimension.”
As with any alliance, there are challenges. One potential obstacle to overcome is compensation; the pricing models are structured differently. “Our fees are generally success-based (paid on funding), and Michael’s compensation is generally projected-based, but he does not take an assignment unless he can add value,” Freeman said.
Despite differences, both executives are confident on how compensation will be handled. “We have discussed both referral fees as a percentage of the fees and pure fee sharing where that might be the right situation for the client,” Shindler said. “In fact, the actual split on fees may well be determined on an ad hoc basis, depending on a number of factors (e.g., whose client, the definition of success, the efforts to be undertaken, the lion’s share of the effort, etc.) No one wants to work for free, and we have acknowledged that as a guiding principle.”
At the moment, the companies are engaged in several conversations with clients where services from both firms could be leveraged. “We are discussing some strategic advisory for owners of retail (malls, regional centers, neighborhood centers) real estate considering redevelopment to address vacancies and modify uses in typically appealing locations,” Shindler said. So far, many of the conversations have happened organically, and they expect this trend will continue.
“We should not lose sight of the fact that neither company is doing anything that is significantly different than before our announcement, other than looking at every new client or pipeline opportunity with the other firm’s capabilities in mind,” he said.
As for what’s in store for Four Corners Advisors in 2019, Shindler revealed: “Gaining traction and working through our respective transactions perspectives, so we don’t step on each other’s toes in dealing with clients and prospective clients, and respecting the other’s point of view.”
The firm’s partner had a shorter response to 2019. “Closing lots of good projects for our clients—one deal at a time,” Freeman said. HB