Lodging Fund REIT III, a Fargo, North Dakota, nonlisted real estate investment trust, has approved a plan to put its 19 hotels up for sale.
Sponsored by Legendary Capital, also based in Fargo, the fund formed in 2019 with a plan to acquire limited-service hotels, across mid-America. The plan was to hold the properties for five years.
With the end of that time frame approaching for many of its hotels, the fund has approved a plan to pursue an exit strategy and position the company for a sale or merger in 2025, according to a filing with the Securities and Exchange Commission.
The decision comes as the segment of travelers that use limited-service hotels has yet to rebound fully from the pandemic and changes in work habits.
The limited-service segment of the lodging industry caters primarily to price-sensitive corporate and leisure transient demand. These properties offer a limited range of guest services, have minimal public space and generally do not have significant food and beverage operations.
Mid-week corporate transient demand remains weak and is the missing piece for the total hotel demand recovery, according to CoStar’s U.S. hospitality analysis for the first quarter. As workers arrange their travels around a hybrid schedule and meeting technology, room demand is weak, especially in the limited-service sector.
Lodging Fund REIT III has invested primarily in 80- to 200-room limited service properties in America’s heartland. Its hotels contain about 2,260 rooms in 10 states.
The exit plan is contingent upon the economic environment being conducive to such a transaction, the fund disclosed in its SEC filing. The objective is to maximize profitability, and the fund will attempt to do that within the next 12 to 18 months, subject to favorable market and other relevant conditions.
Legendary Capital did not immediately respond to a request for additional information on the plan.
As of the week ended Friday, Lodging Fund REIT III had raised about $100 million through the sale of its shares.