LOS ANGELES — With roughly half of its $750 million fund deployed, Electra America Hospitality Group is searching for more hotels that would fit into its niche space.
CEO and Principal Russ Urban said his company is looking for hotels that could be candidates to convert to AKA, a high-end, extended-stay hotel and residences brand and operator.
The company is a joint venture between real estate private equity firm Electra America and AKA. The joint venture was formed in 2021 with a $750 million fund targeting hotels for acquisition and conversion to the AKA brand.
In early January, EAHG acquired the 190-room Kimpton Nine Zero in downtown Boston through an off-market deal and converted it to the Hotel AKA Boston Common, offering both short-term and extended-stay options to upscale leisure and corporate travelers. The company is planning a $15 million renovation of the property.
According to CoStar data, EAHG bought the property for $82.63 million from Brookfield Hotel Properties.
In August 2022, EAHG also acquired the 225-room Loews Boston Hotel for $117 million, converting it to the Hotel AKA Back Bay through a $20 million renovation.
Though it is the second hotel acquisition and conversion for Electra America and AKA in Boston, Urban said it was nearly their first. The Kimpton deal became a possibility in 2022, but the pricing wasn’t right at the time. After buying the Loews property, EAHG learned the Kimpton hotel was still available with more favorable pricing.
Acquiring the Kimpton would also create synergy in operating platforms between the two Boston hotels, Urban said. The properties each have close to 200 rooms, so the company could operate them as a hotel with about 400 rooms. They’re in adjacent and similar submarkets. While the Kimpton has more of a leisure base of business, the Loews has more corporate demand.
“We’re always going to look to hotels that we get a lot more operating efficiencies from,” he said.
The renovation planned for the Kimpton hotel will be a light investment of about $50,000 per room, he said. It will focus on changing out guest rooms and working in the public spaces, but it won’t involve tearing down walls or bathrooms. Some acquisitions require bigger and more intensive renovations, coming out to about $200,000 a key.
“The range is just depending on the market need and the position of the property,” he said.
A Niche Demand Market
Electra America wanted a unique niche in the hospitality space, Urban said. There are a lot of companies investing in Marriott International, Hilton, Hyatt Hotels Corp. and IHG Hotels & Resorts brands, something he has done before in his career in the industry as well.
“We wanted to carve out a specific niche where we would have a lot more say over the brand,” he said. “We would have a lot more control, and by virtue of the brand and operator AKA investing with us, they were aligned in the mission.”
While the extended-stay hotel segment is receiving a great deal of attention from hotel brands and developers, they’re operating in tiers lower than where AKA is, he said.
“No one’s doing it in that four-star space,” he said.
While the AKA brand is known for weeklong and monthlong stays, Urban said EAHG isn’t looking at just serviced-apartment units. Instead, the joint venture is looking at hybrid opportunities for short- and long-term stays. Both of the hotels acquired in Boston represent hybrid opportunities because they have a certain percentage of suites and normal hotel rooms.
“We’re just going to bring the AKA style of operation to those hotels after we lift them up physically,” he said.
AKA brand awareness is growing, particularly in the markets where they have properties, he said. When underwriting new deals, they expect a slower first year, especially with a renovation underway, but as name recognition grows, the hotels are in good shape by the second and third year.
Growing the Portfolio
EAHG has a $750 million fund that is about half deployed after acquiring seven hotels, Urban said. It will likely acquire another six to seven hotels through the fund. After that, the joint venture will either expand the fund or start a new one.
For the remaining capital in the fund, the company plans to consider all major markets and markets executives believe will see continued recovery from the pandemic, he said. They’re also looking at markets that have a lot of growth in and of themselves. They also want markets with a good mix of leisure and corporate demand.
The type of hotels under consideration are those with room counts between about 150 and 300, Urban said.
“We go out of that lane, we typically get outbid,” he said.
Hotels that are bigger or smaller than that or those that have already been repositioned bring in too much competition, Urban said.
“We don’t have much competition in our little niche, and a lot of our competition would prefer to have a big brand already attached to it,” he said. “That’s just not us.”