Trinity Investments' chief executive expects 2025 to be a good year for hotel deals.
The opportunities ahead aren't necessarily ones that are in distress, however, Trinity President and CEO Sean Hehir said in an interview with HNN. Instead, he expects to see deals from owners who need to move properties as their fund cycles comes to an end.
That said, there will be more pressure on owners with legacy capital stacks that originated before the pandemic, he said. They’ll need capital to pay down a loan for modifications, or they’ll need it to reinvest to keep up with new brand standards.
There’s a lot of visibility, and both business and travel sentiment feel positive, he said. There’s a much clearer runway now that the debt markets are cooperative for the right types of properties.
“We have a very robust acquisition pipeline,” he said.
Given these factors at play, Trinity wants to position itself as a source of that capital, Hehir said. The company is not looking to steal a hotel away, but if an owner is in trouble, Trinity has the team that can go in and do what needs to be done.
“I think we would like to be a friendly source of rescue capital for that segment, in addition to our regular day job of buying, fixing, repositioning hotels,” he said.
Making deals
Trinity is set up that nearly every investment it makes is through a joint venture, Hehir said. It has positioned itself as an operating partner to larger institutions that don’t need to have an in-house center of specific expertise but can instead rely on a team of about 50 people for all its heavy lifting on a day-to-day basis.
The company is also looking at some situations where hotel owners don’t want to face the reality of where pricing is in today’s market, he said. It doesn’t need to beat them over the head about it. Instead, they come together to make the deal work.
“Everyone saves face, and then hopefully we do our work, we reposition, we set the asset up for success and then everybody wins,” he said. “They don’t have to take that hit today. They can have a partner come in with capital to help reposition these assets, so that’s something we look at as well.”
This business is all about being patient and creative, he said. It’s also about being credible. Buyers must be able to do what they say they’ll do.
“I spend a lot of my time thinking about counterparty risk,” he said. “It’s important to do business with people you know, people you trust, people that you’ve been in the trenches with.”
In his 27 years with Trinity, Hehir said he’s seen the hotel industry go through a lot of crises, such as the Sept. 11 attacks, the Russian debt crisis, the COVID-19 pandemic and the tsunami in Japan.
“We had a big business in Japan, and I learned that really the deal is secondary,” he said. “The people are first. Who is your partner? Who is your lender? Who is your operator? Those political components are what we are very focused on.”
There’s always competition for deals, but Trinity’s job is to be the best operating partner and best stewards of capital it can be, Hehir said. Its job is to craft the story and create the business.
For example, its acquisition of the Fairmont Olympic Hotel, Seattle in December means it’s now time to craft a story around Seattle, he said. The city had a tough time through the pandemic and recovery from it, but there are major corporations headquartered there, and the hotel is an iconic property.
Trinity’s job is to create the narrative, create the business plan and convince joint-venture partners to buy into it with Trinity, he said. Trinity is not a momentum buyer that’s going to buy a hotel and then clip coupons.
“No, this is why we're buying it. This is what we're going to do to it. This is what we think the performance will be,” he said. “What we think about all the time ahead of any acquisition is what is the likely exit, public, private, type of buyer, you know, all of those things. So, that's our job: to really narrate the story, come up with the business plan, and then execute on the business plan.”
Another one of Trinity’s recent acquisitions was The Standard, London. The Standard, London is an exciting prospect because it’s getting plugged into the Hyatt system, Hehir said. It’s a well-located property in the heart of King’s Cross, and it has a lot of tech companies around it, so corporate travelers will want to earn their loyalty points.
“Now The Standard is in the Hyatt system, all of those corporate travelers, in my opinion, that are going to be visiting Google and Facebook and whoever else in that King’s Cross submarket, then have a reason to stay at The Standard because it's in a loyalty program that they can participate in,” he said.
The ongoing repositioning project of the Diplomat Beach Resort Hollywood to a Signia by Hilton property is going well, Hehir said. Any renovation project is going to be disruptive, but the resort’s convention center is a separate building. The lobby portion of the work is complete and has been well-received. The pools are currently under renovation and coming along.
Hilton’s team is doing a great job managing the project, and it’s currently operating as a Curio by Hilton property until the work is done, when it will flip to the Signia brand, Hehir added.
“The group pace that they've been able to drive into that property is really impressive,” he said, referring to Hilton’s management team.
The right strategy
A disciplined approach and having the right team in place have served Trinity well over the past eight to 10 years, Hehir said. The company is approaching 50 people now as it handled everything in-house: sourcing, acquisitions, project management, asset management, etc. When the pandemic hit, there was a team that could look over the properties that closed while another team could review acquisition opportunities.
Trinity has stayed with the Hilton, Marriott International and Hyatt Hotels Corp. family of brands, though it recently branched out with its purchase of the Fairmont Seattle, which is an Accor brand.
“We’ve always focused on more destination-oriented hotels, and that comes from our background of having started the firm in Hawaii,” he said.
Trinity loves hotel markets in Florida, Texas, Arizona, Southern California and Hawaii, he said. The properties it pursues are typically larger on average, allowing them to cater to multiple demand drivers. The strong group pace recovery as well as the bookings going forward have been targeting these types of markets. Leisure demand and bleisure demand — the mix of business and leisure — have been robust.
The company has focused on hotels and resorts in the upper-upscale and luxury segment, Hehir said. It loves brands in these segments, such as JW Marriott, Westin and Ritz-Carlton, because they’re larger, have more amenities and provide the experiential travel people want.
“When we see a lot of multi-generational families traveling together, and I'm sure it's the grandparents who are paying for the trip, but then the kids and then the grandkids — they travel together, because I think that they've realized that this is a way that they can share their wealth with their family and have great experiences and memories along the way,” he said.
It’s difficult to differentiate between corporate and group stays, Hehir said. With so much remote and hybrid work, companies have shrunk their office footprints. When they need to bring people together, they’re holding more off-site meetings because they don’t have the office space to host everyone.
“I don't know whether you put that in the group bucket or the corporate bucket, but it feels like a mixture of both to me,” he said.
Trinity’s Grande Lakes Resort Orlando, a 1,600-key property with a JW Marriott and Ritz-Carlton, hosted eight different groups from different trade industries in December, he said. Along with the trade groups, there were corporate and leisure transient guests as well.
“We've got to make sure that we continue to have bespoke spaces that cater to all of those segments as they're intermingling with each other,” he said.
Another tailwind for this space is the lack of new supply coming to the upper-upscale and luxury segments, Hehir said. Higher inflation and interest rates mean no one is building them, so the industry is enjoying demand growth and no new supply.
The midscale space has lower barriers to entry, so there’s always new supply coming in, Hehir said. Not to knock it, but that’s more a commodity business, he said, adding that people are making decisions based on price. In the spaces where Trinity invests, people are choosing the destination and the actual property, especially in group business.
Looking ahead, Hehir said he’d like to see Trinity grow into hospitality-adjacent businesses, citing what KSL Capital Partners has done.
“I think there’s an opportunity for us, whether we get more involved in credit down the line or could be marinas or [fixed-base operators] or anything that has a hospitality angle to it,” he said. “I’d like to see us bringing our expertise into that area.”
There are no definitive plans to enter this space yet, but it’s something Hehir said he continues to consider when thinking about Trinity’s growth.