NEW YORK—Large portfolio acquisitions have been an integral part of MCR Development LLC’s rapid growth over the last several years, and that pattern continued with last month’s purchase of an 18-hotel portfolio from Apple Hospitality REIT.
MCR, which now has a total of 88 hotels, paid some $206 million for the collection of Hilton- and Marriott-branded, select-service hotels. The portfolio represents 1,787 rooms across 11 states and includes properties in cities such as Charlotte, NC; Savannah, GA: Cincinnati; Tulsa, OK; and San Antonio. The Marriott brands include Courtyard and TownePlace Suites, while Hilton’s flags are comprised of Hampton Inn & Suites, Hilton Garden Inn and Homewood Suites.
Russ Shattan, SVP, acquisitions and development, MCR Development, talked about the appeal of the portfolio from the perspective of the owner and operator, which is headquartered here as well as in Dallas.
“Our primary focus the last few years as we’ve grown the company is looking for Hilton and Marriott hotels only. We’re age conscious; we prefer purchasing newer hotels rather than old. The portfolio is a little less than 10 years old in age, so that was appealing to us… We were attracted to the portfolio because it was sold unencumbered of management. We see our value added through management. None of the hotels of the 18 were on any ground leases; there was a lot of flexibility there. They were all fee simple, and they were all sold free and clear of any debt. So, from our perspective, that checked a lot of boxes,” he said.
Shattan said that the per-key price of the acquisitions was $115,000, which he described as “well below replacement cost.” Apple REIT reportedly disposed of the assets as part of a plan to prepare to take the company public and focus more on urban markets. According to Shattan, “These are in secondary locations, which we’re happy with.” MCR will own and operate the properties with 15-year franchise agreements in place.
At press time, the company was in the process of bringing together general managers of the newly acquired properties to introduce them to MCR’s “approach to revenue growth and operations,” according to Shattan. As an example, he noted the company generally takes more of a RevPAR- and occupancy-driven approach to management, placing a priority on filling rooms as opposed to maintaining a certain rate. “As the day goes by, we’re happy to lower the rates to capture that last piece of business,” he said. Shattan added that the company tries not to rely too much on online travel agencies to fill the remaining inventory.
Shattan added, “Of the half a dozen deals we’ve done over the last five years, the trend we’ve noticed with a lot of developers is that, because they built the buildings, there’s a stronger degree of pride in the building itself. They’ll say, ‘I didn’t build this hotel to sell rooms for $100.’ There’s much more of a developer mentality to push that rate up,” he said, adding the company doesn’t take that approach because it is a “returns-driven investor.”
Shattan insisted that the company continues to seek acquisitions as the main thrust of its growth strategy, but emphasized it would only pursue deals opportunistically as he referenced the current deal landscape. “It’s gotten competitive. The limited-service sector is extremely hot. Our competitors have brought a lot of equity to the sector, so it’s gotten more and more difficult to find good deals, and that’ll probably weigh on our ability to grow in 2015,” he said.
Shattan also acknowledged that the frothy prices of assets could ultimately shift the company’s approach in the near term. “We’re going to look selectively, particularly this year, at potentially selling some assets if there’s good value. But, there’s no urgency on our part; it’s not a high priority,” he said.
MCR does have two new-build projects in the pipeline with a pair of Residence Inns in the Ft. Lauderdale/Ft. Lauderdale North area of Florida. Shattan referred to it as “a high-barrier-to-entry market with a lot of opportunity.” One of the properties is slated to open in June of 2016, while the other is scheduled for a January 2017 debut.
In addition to six Value Place hotels that were developed by the company at the onset, MCR’s select-service portfolio consists strictly of properties under the Hilton and Marriott brand umbrellas. Shattan said that will be the case for the foreseeable future. “There are no plans to expand the brands. We’re very pleased with Hilton and Marriott. The returns have been very strong,” he said.
The company also continues to invest in its existing portfolio as well, and has completed two renovations thus far this year. Last month, it completed an interior renovation at the Residence Inn by Marriott Mt. Laurel at Bishop’s Gate in New Jersey. The redo featured updates to the lobby and guest suites, including new furniture, new flooring and soft wall tones. MCR also wrapped up an extensive renovation at the 88-suite Residence Inn in Spartanburg, SC, which involved upgrades to the lobby area, guestrooms and enhancements to the hotel’s exterior, including new stairwells.