FAIRFAX, VA—Crestline Hotels & Resorts LLC has created a $300-million fund that it will use to acquire hotels and invest in properties with strategic capital partners. This will be the first time that the third-party management company will be investing in its own properties.
The goal of these investments is to enable the company to continue the steady growth of its management portfolio. Crestline will be investing $150 million of equity and is targeting 50% debt for the fund.
“We are actively identifying investment opportunities for our new fund within the upscale and upper-upscale hospitality segments,” said James Carroll, Crestline’s president & CEO. “Crestline will use the fund and our management expertise to convert underperforming hotels into lucrative investments that outperform their competitive sets. The fund has flexible investment parameters, allowing us to acquire hotels, invest in joint ventures, provide mezzanine financing and we will consider entering into long-term leases or performance guarantees. We’ve been very successful steadily growing our management business with our current owners based on our strong track record; and this fund will open up new opportunities for us to spur even greater growth of our management portfolio.”
He feels the time is right because the company is “very bullish” about long-term growth prospects still in the U.S. hospitality sector. ”We will be underwriting opportunities judiciously, drawing on our perspective as a management firm and our deep knowledge of how hotels and markets can perform,” he said. “We are already sifting through leads and potential opportunities that are coming to us from a variety of sources, including private equity funds and REITs that are looking to modify their portfolios by selling hotels that may be ‘non-core’ assets for that particular investment vehicle; a hotel that may be non-core to a public REIT, for example, because of the RevPAR, the brand or the capital expenditure requirements; developers that are more focused on building quality assets than they are on the long-term management and ownership business; and current ownership groups looking for joint venture partners.
Carroll continued, “We’re also just starting to talk to some international investors that are interested in the ‘European-style’ triple net leases. With this fund, we now have the ability to provide the necessary security for these institutional triple-net lessors and are looking at some major gateway cities with this deal structure.”
Previously, the company has only managed hotels for investors. This will be the first time it will be doing the investment itself. “Crestline has been growing its management business with its current owners, and throughout its history, has engaged in real estate investments to enhance growth of the management business,” he said. “We are very excited now to have an opportunity to use a strong balance sheet to help further fuel our growth.”
He said that the company will not be competing against its current owner partners. “As we ramp up our underwriting efforts so that we can deploy our capital, we would present any opportunities that fit the investment criteria of our current partners first, giving them the opportunity to pursue before Crestline would consider doing a deal itself.”
Carroll continued, “The primary objectives of this fund is to grow our management company in such a way that strengthens our ability to manage assets for our current partners. By creating new opportunities for our team members, by continuing to build our corporate infrastructure and our regional operating synergies, we firmly believe that we’ll be able to use this investment platform to directly benefit our current owner partners.”