Managing the portfolio of Coral Gables, Florida-based Driftwood Capital is no easy task, but founder, President and Chief Operating Officer Carlos Rodriguez Jr. said the company continues to achieve goals for further growth.
Speaking during the vertically integrated commercial real estate investment, development and lending platform's 2021 Investor Conference, Rodriguez Jr. said those goals included protecting the firm's downside, seeking out opportunities for transactions and planning for growth.
"We are now finally seeing tailwinds in the industry for recovery," in a macro-economic sense, he said.
"It's during challenging times that you could unlock value, and it's about staying power in this industry."
Market Performance
Relative to 2019, several hotels in Driftwood's portfolio are exceeding pre-pandemic performance, including the Hampton Daytona Beach/Beachfront, the DoubleTree by Hilton Historic District in St. Augustine, Hilton Dallas/Rockwall Lakefront and Margaritaville Lake Resort Lake of the Ozarks.
The common theme between these properties is they are in Sun Belt, resort-oriented destinations. He said the Daytona hotel was referred to as "the dog" of the portfolio but over time showed its value.
"It's about buying right in the right locations and having conviction over the long term that you can manage through [challenges]," he said.
Some of the company's hotels that have a longer road to recovery include the San Diego Marriott Mission Valley because of a renovation and the Hilton Durham near Duke University due to campuses being slower to ramp up.
He expects the hotels will be cash-flow positive in 2022.
Recent Hotel Openings, Deals, Developments
Despite challenges from the pandemic, Driftwood Capital continues to add new hotels to its portfolio, such as with the Canopy by Hilton Tempe Downtown, Canopy by Hilton West Palm Beach Downtown and Home2 Suites by Hilton Ft. Lauderdale Downtown.
"That was not an easy task to start ramping [up] during the pandemic," he said.
Driftwood Capital also has been active with dispositions.
"Believe it or not, that's been the theme of 2021; despite not having cash flow, people are coming around to finding and hunting for yields," he said.
Hotels that are under contract to sell include the Holiday Inn Express & Suites Orlando — International Drive and the Sheraton Salt Lake City Hotel, which are both more business-oriented hotels.
"To achieve that [internal rate of return], even without the cash flow that we had the [past] couple of years, is attractive," he added.
Two additional hotels are listed.
Carlos Rodriguez Sr., founder chairman and CEO of Driftwood Capital, said his company has four hotel development deals now totaling 916 rooms with $488 million in development cost. The common theme across these hotels is that they are in growing markets, with value creation capabilities and barriers to entry.
"We're being very picky as to where we go for new development," he said.
Rodriguez Sr. highlighted the $350 million development of the Westin Cocoa Beach Resort & Spa in Cocoa Beach, Florida, which his team has been working on for the past five years.
"It's been a labor of love getting all the entitlements and getting all the zoning requirements met. I can finally tell you we're there," he said.
Near that property is the development site for the Element Melbourne Beach, which he said is another deal that has great potential due to the market's diverse demand drivers, as well as a lack of any other new beachfront hotels and extended-stay hotels. Additionally, with this being a Marriott product, it fills a void in a Hilton-dominated market, he said.
Lending Activity
In 2020, Driftwood Capital announced it intended to raise $100 million from investors to source mezzanine loans and preferred equity transactions to help owners and lenders who were struggling through the pandemic.
Since then, Driftwood Capital has funded $50 million in loans across five hotels — Hyatt Place Noma, two Cambria hotels in California, Home2 Suites Charlotte and Shashi Hotel Mountain View — totaling 805 rooms. Rodriguez Sr. said more are in the pipeline.
Each of these loans represent a strong loan-to-value ratio, premier sponsorships and solid loan structures that aren't too over-leveraged.
What are High-Net-Worth Investors Looking For?
During the conference, Rodriguez Sr. sat down with Jolyne Caruso-Fitzgerald, divisional vice chairman, global wealth management, at investment banking company UBS.
Caruso-Fitzgerald oversees a group of advisors who manage clients with $100 million and more to invest.
"We've seen during the pandemic how global wealth has actually soared. Global wealth was up 8.3% to $250 trillion," she said, noting billionaires are structurally changing the way investment is happening.
There were 493 new billionaires in 2021, compared to 2020. In total, there are 2,750 billionaires around the world that in total control $13 trillion, up from $8 trillion in 2020, she said.
The buckets in which these individuals are active include investing in private equity, and according to a survey UBS conducts each year, 85% plan to increase their allocations to private equity. There's been a tremendous decline in investing in funds and a vast increase in private direct deals, she said.
"They want to use their expertise as asset owners and entrepreneurs to really affect change in the companies that they are investing in," she added.
Real estate is 15% of the average asset allocation of these family offices surveyed. Additionally, 82% of those surveyed indicated that they plan to increase their allocations to real estate this year.
She said 73% of the family offices who invest in real estate are doing it for yield, diversification and returns.
"The other big wave that drove real estate investing this past year is opportunity zones," she added.