Singapore-based real estate fund manager ARA Asset Management announced on Monday that it had purchased a portfolio of 38 Hyatt-branded hotels in the United States from a unit of Lone Star Funds at an undisclosed price, marking ARA’s first foray into the American hotel market.
According to industry consultants, ARA is acquiring a portfolio of Hyatt Place and Hyatt House hotels, that the Chicago-based hotel firm had sold to a unit of Lone Star for $590 million in November 2014, with Lone Star refinancing the deal in 2017 and also completing a $55 million renovation of the 38 properties the same year.
The 38 mid-range hotels, comprising 4,950 rooms in 22 states but located primarily in the northeastern part of the US, had maintained their Hyatt branding under a franchise agreement between Hyatt and Lone Star, and will continue to be managed by hotel management specialists Aimbridge under the agreement with ARA.
Along with the hotel acquisition, ARA announced its establishment of a North American headquarters, in Dallas, Texas, with Jin Y Lee of real estate private equity firm Park Madison Partners joining the Singaporean firm to head up the new office.
Looking for High Yields in Mid-Range Hotels
In its statement, ARA expressed confidence in the potential yields on offer in the American hospitality sector, especially in “select service” hotels, which cater to budget-conscious business travelers. Lim cited the industry segment as having outperformed the traditional full-service hotel sector due to a simpler operating model and increasing demand by a growing number of local business travelers in the US.
The hotels are located primarily in regional centres and second-tier cities in the US, such as Richmond, Virginia; Albuquerque, New Mexico, and Boise, Idaho with major hubs where real estate values are highest, such as New York, Chicago or California’s major cities unrepresented in the portfolio.
ARA, which traditionally acts as a fund manager making investments on behalf of REITs, funds or separate accounts under its management, said that the group was purchasing the Hyatt portfolio directly.
The company’s chief executive, John Lim, said ARA would look at injecting the Hyatt portfolio “into our growing REITs and private fund platforms in the near future as part of our multi-platform, multi-product global fund management strategy.”
Global Expansion Plan
The Hyatt purchase is part of ARA’s plan to expand its global footprint, although the company had earlier said the Asia Pacific region would remain its main focus.
Daniel Voellm, the Asia Pacific managing partner for global hotel consultancy HVS, said the ARA purchase represented a “direct bet on the US economy” and underlined a strategy focused on achieving steady yield streams from mid-market hotels, rather on acquiring trophy assets in major US cities. “It will be interesting to see the investment horizon for ARA and exit scenarios,” though, Voellm added.
In March of this year, ARA acquired a 19.5 percent stake in Australian real estate investment manager Cromwell Property Group for $317 million from a South Africa-based REIT. Cromwell, which also has extensive holdings in Europe, counts the global headquarters of Qantas airlines among the trophies in its Australian portfolio.
ARA also announced earlier this year a plan to target deals in Europe through a platform based in London under the leadership of veteran real estate financier Mark Ebbinghaus, who looks after the firm’s European desk in his role as senior advisor.
Chasing Hotels in the US
The Hyatt portfolio acquisition takes ARA, which has about $57 billion in assets under management in 20 countries, deeper into the hotel market than it has previously ventured.
The firm, which counts Li Ka-shing’s CK Hutchison Holdings, US private giant Warburg Pincus, and China’s AVIC Trust among its shareholders, has previously counted a total of three hotel assets — all in the portfolio of Hong Kong-listed Hui Xian REIT — among its investments.
In the US, however, the company is turning to Lee, who had nearly twenty years of experience in hotel investments in the US before becoming a principal at Park Madison Partners in 2016. Lee, whose office will lead ARA’s partnerships with Hyatt Hotels and Aimbridge Hospitality in this latest acquisition, also has previous experience with Thayer Lodging Group and HEI Hotels and Resorts.
Warburg Pincus and AVIC Trust teamed up with ARA’s Lim to privatise ARA in late 2016. The partnership said at the time that it was making the move based on the potential for accessing Chinese capital and business opportunities.