Houston, Texas-based management company Terrapin Hospitality made a splash in late September by acquiring a friendly competitor in nearby San Antonio, Texas-based K Partners to double its portfolio to approximately 70 hotels and 7,335 rooms in 13 states. At that moment, Terrapin and its affiliates had an ownership interest in 35 of the properties, while the rest are strict third-party management deals. Now, the plan is to grow exponentially and reach, perhaps, 200 properties under management by 2025. Additional deal are already flowing.
The K Partner portfolio comes from about 10 different ownership group, primarily in Texas and the Southeast. “We paid a pretty low multiple because they weren’t that profitable,” Terrapin Founder and Principal Tony Sherman told HOTELS in late October. “By absorbing them, creating economies of scale and doing things more efficiently, we think that the return on equity is very high on the acquisition… We expect this to be very creative to our earnings and cash flow in 2022 and beyond.”
With the help of significant stakeholders Waramaug Hospitality and its well-known leaders Paul Nussbaum and Leslie Ng, the game plan is to keep acquiring branded midscale and upper-midscale hotel contracts and perhaps more portfolios. Of Terrapin’s current portfolio, Boca Raton, Florida-based Waramaug owns 23 hotels. In total, Waramaug’s hotel portfolio sits at 40 owned properties.
“Tony Sherman and his team at Terrapin are excellent operators,” Ng said. “They drive superior margins and keep things simple. They hire the best talent in the market for each hotel and provide the necessary corporate support to let their hotel managers excel, all without burdening the field with unnecessary corporate meddling. This results in lower costs to the hotels with significantly better operating results. We definitely saw a strong opportunity to grow this platform; owners love their results.”
Sherman said Waramaug’s very good relationships with institutional capital partners will help the partnership buy more assets, but they will remain very conservative in their approach. “Growth is really going to come from buying other management companies and earning more management contracts from existing owners and new owners,” Sherman said.
That said, not long after the K Partners deal, Terrapin was buying two properties in Glenwood Springs, Colorado, and together with Waramaug was acquiring a Radisson in Lansing, Michigan, that will convert to a DoubleTree and be managed by Terrapin. On its own, Terrapin owned 12 hotels in early November with an estimated value of US$200 million.
Sherman said that he is spending most of his time pursuing new third-party management contracts, adding that along with Waramaug, Terrapin was bidding on two portfolios.
“One of the attractions of buying K Partners, in addition to buying good contracts and good cash flow, was getting Shawn Kvernen, who has joined Terrapin as senior vice president of Business Development, as well as Jack Nash (vice president of business development),” Sherman said. “They are development guys who can help us grow the company organically by pursuing more third-party management contracts. And we have a very good pipeline both of portfolios and one-offs that we’re pursuing. It’s very exciting because they have a lot going on and now with the additional resources of Terrapin they can go after larger properties and portfolios.”
In fact, Sherman expected another five hotel deals to close before the end of the year. “I think we’ll be at over 100 by the end of Q1 2022,” he added.
As for the deals the new team is sourcing, Sherman said they are finding companies that just haven’t been happy with their current management companies, “some of the very large, national ones.” He said too many owners aren’t getting the attention they need and Terrapin is finding opportunities with owners that are looking for more aggressive and nimble management companies.
“Every owner has my cell phone number, and I got into hotel management because I was so frustrated with the way I was treated by other hotel management companies that wouldn’t return my calls… I know how that feels,” Sherman explained. ”I want to treat every owner, every employee and every guest the way I want to be treated, which is with respect and courtesy. I find that works, and it’s simple. That’s our corporate culture.”
Sherman takes his availability a step further by having his phone number posted on every time clock at every property and his email address is on every hotel plaque in the lobby. If a housekeeper feels threatened, is unhappy or sees something wrong, they can call him. And the fact is, Sherman said, he doesn’t get many calls. “But if I get a call, I take it very seriously.”
Terrapin is also targeting acquisitions of properties that are doing as well or better this summer than it did in 2019. “Some are from sellers that are just tired of being in the business,” Sherman said, adding that Terrapin is also looking at several REO hotels going through the system and being listed by brokers. “We just bought two closed economy hotels in Wyoming from a lender at a fraction of replacement cost, which is a really unusual situation there.”