Long-time hotel industry developers Gordon Sondland and Karim Alibhai have joined forces to start a creatively structured special purpose hospitality venture, GenPro, which will launch with eight assets from Sondland’s Provenance Hotels portfolio. HOTELS has learned exclusively that Sondland and Alibhai will each contributed US$35 million in cash to the venture, which will also include institutional partners investing in the rest of the capital stack. In a Friday morning interview, the pair would not divulge transaction details nor the total investment made into GenPro.
Jointly led by Portland, Oregon-based Provenance’s Founder and Chairman Sondland and Miami-based Gencom Founder Alibhai, GenPro will seek to expand through future acquisitions and/or redevelopment opportunities. They said at least three separate deals are in advanced stages of negotiations and initially they expect to execute on average four to six deals a year, which could include portfolio deals.
GenPro’s hotel assets will be managed by Benchmark Pyramid. Alibhai currently sits on the Board of Benchmark Pyramid, and Sondland will also join the Board upon the close of Benchmark Pyramid’s acquisition of Provenance, which is expected in the second quarter of 2022.
Sondland has retained the Provenance name after selling management to the Benchmark Pyramid and said an announcement is forthcoming about the exploitation of that name going forward.
GenPro’s initial portfolio of properties includes the downtown Seattle, Washington—Hotel Max; the boutique Old No. 77 Hotel & Chandlery, situated just blocks from New Orleans, Louisiana’s French Quarter; downtown Nashville, Tennessee’s newly renovated Hotel Preston; the museum-worthy collection of glass art at Hotel Murano in the South Sound; and four downtown Portland, Oregon hotels: the Hollywood golden age-style Hotel Deluxe in the Goose Hollow neighborhood, Sentinel in the West End, Hotel Lucia, which is listed on the National Register of Historic Places, and the art-filled rooms of Dossier.
These eight assets were easy to bring into the GenPro fold because they’re all contained in one entity and owned by the same investment group in which Provenance sponsors and partners own the lion’s share of the equity. Sondland added that there are other Provenance hotel assets that are not going into this venture that will be “dealt with separately.”
Deal origins
The deal started to come together about a year ago during a lunch in Miami where the new partners drew up an agreement on a napkin. Sondland and his partners were looking for a strategic partnership that could both enhance their management company with scale, but at the same time align on the real estate portfolio with a partner that was also aligned on management. With Gencom being in the unique position where it is a shareholder in Benchmark, and now Pyramid, and also being a real estate shop, the two were able to create this vehicle.
“The key to this is the alignment on both sides of the deal, which is not easy, where you’re managing essentially your own property,” Sondland added. “It’s hard to find a partner where they’re invested in both pockets of the pair of pants – and that’s what we have here. The deal took a while to structure to make sure that the alignment portion – heads you win, tails you win – worked out so that all the stakeholders feel comfortable.”
Growth strategy
The strategy to grow GenPro includes looking for lifestyle/boutique projects and properties all over the United States and maybe even in Europe where a value-add opportunity presents itself. Alibhai said it could include redevelopment deals. “We really like partnerships that enhance an asset and then, obviously, with Benchmark Pyramid being a very seasoned and specialized operator in this segment, that gives us an operator that we can continue to bring in tow,” Alibhai said.
He continued, “If you had to pick one asset class that was in most disfavor and where there are more opportunities, urban, full-service boutique hotels are the ones that are slower to come back, or the downtown Kimpton-type properties, which outperformed prior to the pandemic. So those are the opportunities we’re looking at and are under consideration right now.”
Deals could come from existing owners who want a little help and may still want to even continue to own their assets, where GenPro could come in and buy a 50% stake, for example, turn management around with Benchmark Pyramid and still leave the owner with upside once the market recovers. “The good news about this venture is both Karim and I comprise the investment committee,” Sondland said. “And we can be very flexible in how we structure these deals.”
On the new development side, GenPro has one deal in the works in the U.S., which it cannot yet announce. “It would be a very exciting ground up development in an absolute barrier to entry, waterfront locations,” Sondland said. “It’s a great market, but it’s going to be a three- to four-year development cycle. The existing assets that require repositioning or require capex are clearly the low-hanging fruit both in Europe and in the U.S.”
Clearly, domestic markets are the priority for growth, although Benchmark Pyramid has a wholly owned subsidiary based in London called Hamilton Partners and they manage a big portfolio similar to what GenPro is pursuing.
“During my time and service in Europe, I met a lot of people made a lot of friends,” said Sondland, who served as U.S. Ambassador to the European Union during the Trump administration. “I’ve been invited several times by folks that I’ve met along the way to come over and explore opportunities. So, I think that’ll be an interesting additive venture.”
At the same time, Sondland was a key witness in Trump’s impeachment inquiry and revealed that he told a top Ukrainian official that hundreds of millions of dollars in military aid would “likely” be held up unless the country’s government announced investigations into President Donald Trump’s political rivals — a major reversal from his previous closed-door testimony.
As for the negative connotations tied to Sondland’s ambassadorship, he said, “As this has shaken out, after all of the initial media frenzy, I’m very happy that as I move around the world, literally in the United States and elsewhere, I’m frequently recognized. And someone, to me, that’s clearly a Democrat, says, ‘thank you for telling the truth.’ And someone else will walk up to me as a Republican and say, ‘thank you for your service.’ So, I really had few of any negative comments in the preceding two years since all the frenzy.”
Alibhai concluded by saying the deal enables GenPro to do deals where it can say, “one plus one equals three,” which brings both real estate ownership and management expertise together because it is going to spend “a fair bit of money” on the portfolio to renovate and reposition. “Having a relationship with our management company that we believe is best in class, we have a very strong upside potential here,” he said.