CHICAGO— To understand what Ultima Hospitality stands for and the role its executives hope the company plays in the hotel industry, one only needs to take a look at how Ultima’s parent company, private-equity firm Waterton Associates, LLC has positioned itself.
“Waterton was founded (in 1995), and has gone on to become a $3.2 billion company, and we want to replicate that story … on the hospitality side,” said Mark Zettl, COO of Ultima Hospitality.
When the Chicago-based company started 17 years ago, Waterton was organized to invest solely in residential apartment buildings, but “about seven years ago, the decision was made to diversify and get into hospitality,” Zettl said.
However, it wasn’t until 2009 that Ultima Hospitality was born. Before that, the organization was simply a division of Waterton. Once executives realized the company was gaining enough traction in the industry to form a separate entity and stand on its own, it branched out to become Ultima Hospitality.
The number of properties in the company’s portfolio has fluctuated, Zettl said. Today, it consists of seven owned and/or operated hotels, with the announcement of its most recent management contract on 8 October for the 172-room Holiday Inn Chicago SW Countryside Conference Center.
Building the portfolio
While establishing itself as a strong company is a long-term goal, beefing up the Ultima portfolio to a large magic number is not something executives have in mind, Zettl said. With the company’s current bandwidth, “we can absorb two or three small hotels (per year).” To grow at a rate faster than that with where the company stands now would be distressing, he said.
For now, the company will stick to what it knows best, Zettl said. “Where we’ve been most successful (are in) coastal markets out of Boston, outside of San Francisco,” he said.
“Basically our investment strategy at this point is to go to major markets—top 25,” he said. Within those markets, full-service distressed assets the company can reposition are the target.
“We’ll do (some) limited-service and select-service as well.”
Zettl gave the company’s September purchase of the Tam Woods Hotel, North San Francisco Mill Valley in California, as an example. After a redesign of all guestrooms and public spaces, the property will reopen in December as a Holiday Inn Express.
The demand and economy in suburban markets of the top 25 are the key drivers behind these targeted investments, Zettl said.
Cash flow helps in the financing market
For 2013, the major focus will be on acquiring full-service hotels, he said. The goal is to transact in the $15-million to $25-million range, and “where we take our vertically-integrated business (and) can basically buy, operate and manage.”
The lending market is still a challenge, but Ultima executives have been successful in finding properties that have cash flow, which makes it easier to obtain financing, Zettl said.
“It’s getting a little bit more competitive,” he said of the financing market.
It’s been across the board in terms of who has been lending, he said. A local bank was the lender for the Sheraton Framingham in Massachusetts, which the company is in the process of renovating. For its other properties, Ultima has been working with national lenders, Zettl said.
“We’re having success … if you look at where we were a year ago and where we are today. We’re having success with our capital partners,” he said.
“We’re winning in each respective market because of our people.”