KSL Capital Partners, Denver, is known for its expertise in the luxury space, but for a number of years was actually looking at the extended-stay and limited-service segments, and just couldn’t get a portfolio launched, until now. In August, after having more time to think during COVID, the private equity firm launched Mission Hill Hospitality, a portfolio company created to acquire select-service and extended-stay hotels. By late August, Mission Hill Hospitality had acquired 12 hotels and further growth will come via one-offs or even portfolio deals, according to Mission Hill CEO Greg Kennealey, who spoke to HOTELS in August.
“Like many groups, once we protected our people and cash flow during COVID, we started to shift to look at what else we could do coming out of this at some point,” Kennealey said. “Extended-stay and select-service in any given year represents roughly one-third of the transaction volume in United States… This is a large, investable universe that we, for a number of reasons, haven’t spent much time in, and we really think it merits more consideration. The real question was, how.”
Ultimately, KSL decided to move forward in a way that was consistent with its approach to other sectors – create a dedicated team. Among the hires to find deals and add value to the assets was Tom Barber, the former global chief development officer at Wyndham and Mike Wilbert, who had senior roles at Tishman and Apple REIT. “It became a logical transition for me to go and lead it because I’ve been passionate about the space for a long time,” added Kennealey, who previously oversaw direct hotel, real estate and investments at KSL.
Of the initial 12 deals that came to fruition over six months, three or four were through direct relationships with owners and the balance came through brokers. The team is searching coast-to-coast in the U.S. and all franchised properties with brands from Marriott, Hilton and Hyatt.
Mission Hill is working with a number of the bigger, more institutional management companies at present and has no plans to get into the management business, according to Kennealey. It will continue to work with big management companies and is in conversations with others. “We are still getting to know the different management companies in this space learning who has particular aptitude as certain assets have different needs,” he added. “We will end up with a handful of preferred management companies.”
Opportunities ahead
Kennealey said getting the first dozen hotels in the stable was a big effort and he doubts Mission Hill will choose to maintain that pace – it’s more a function of when it finds the right deal. The team is digging in hard to source deals, but at the same time will be patient, he added. “It feels like the pipeline of opportunities that we’re going after right now is relatively robust… We are generally pursuing one-offs or onesie-twosie type transactions, but by the virtue of our partnership with KSL, we have the resources if we need to pursue and take down a larger portfolio… We have to get to some level of scale given the size of KSL for it to be appropriate for their investors. While we don’t have specific numbers in mind, I’m optimistic that we’ll be able to continue to grow at a pretty good pace.”
The focus is on undercapitalized, undermanaged assets where there are value-creation opportunities, Kennealey said. “Renovations, repositionings, upbrandings and even PIPs in certain cases become problematic for certain ownership groups, and those are all things that we’re really comfortable doing.”
But finding excessive distressed opportunities has not been the big opportunity and Kennealey said the big discounts have all but evaporated. “Some of that might come back if we have another dip here in the winter. So, more to come there,” he said.
New development is not really in the cards for Mission Hill at this stage, Kennealey added, even though a number of the initial assets were acquired at the time they were opening. “It’s more of a developer takeout because we’re comfortable taking that ramp up or stabilization risk. But that’s probably as far as we’re going to go – at least in the near term.”
But Kennealey was quick to add that at some point down the road, being the equity capital in a development deal with an institutional-quality developer with a long track record is a possibility with Mission Hill being the majority partner.
Adding value, creating bonds
As the new company further develops, it is spending more time on driving value to its limited-service portfolio, using KSL’s best-in-class playbook where appropriate. Kennealey said he is seeing a fair amount of enhancement opportunities in the F&B arena. They are exploring rooftop bars, bringing even a small offering to pool areas and generally doing more to keep the business and family travelers on property with more conveniences. “Things like that just make it a little bit easier and give us that edge relative to some of the other hotels in the comp set,” he says.
By early September, Mission Hill had 11 employees in a new office five minutes away from the KSL office, and Kennealey looks at Mission Hill as a wonderful opportunity for him to help build something from scratch inside his KSL family. “Having those guys and that level of support and expertise has been invaluable,” he said. “KSL is the best at what they do and being able to partner with them in this role has been phenomenal.”
Putting all of this together during a pandemic has been 90% thrilling and 10% scary for Kennealey. But by virtue of being connected to KSL, a capital partner that has been investing in hospitality for 30 years, comes some security, as well.
Now the job is to fly safely to look at assets, spend too many hours on Zoom calls and build the team bond under difficult circumstance, which Kennealey said will only serve to increase the cohesion of the team.
“The sense of satisfaction that core group feels about what we’ve done here is pretty significant,” he added. “That enthusiasm and camaraderie is something that’s attracting new employees, and just making Mission Hill a fun place to work.”