Trinity Investments President and CEO Sean Hehir sees plenty of reasons to believe a broad hotel demand recovery will continue, and his company's latest investment — acquiring the 1,000-room Diplomat Beach Resort in Hollywood, Florida, through a joint venture with Credit Suisse Asset Management — is a great way to make the most of that boom.
The 1,000-room resort, which was previously owned by Brookfield Asset Management, is uniquely positioned to cater to various types of travelers in a popular destination, Hehir said.
"The Diplomat is one of those assets ... where you cater to multiple market segments, and you've just got to make sure you create or provide the amenities that allow that," he said.
Those amenities include "bespoke dining experiences that don't feel like you're eating in a hotel," private club lounges, and what Hehir called "the right pools and leisure activities."
He said the best way to describe the beachfront resort is "irreplaceable."
"Where else in the country can you find 10 acres on the ocean and another 10 acres across the road on the [Intercoastal Waterway] to build a hotel like this?" he said.
Hehir said it's impossible to ignore the powerful travel demand to South Florida, and he believes it will continue to be a growth market. As businesses continue to operate with hybrid or full work-from-home models, resort destinations in desirable markets like this one attract both "work from anywhere" guests, and companies seeking venues to bring remote workers together.
"That's really a permanent phenomenon," he said. "Every two-day weekend is now a three-day weekend, and every three-day weekend is now a four-day weekend."
The sale was first reported by the Wall Street Journal, with a price tag of $835 million, although no price was disclosed in the official release. The deal marks the largest hotel deal in the U.S. — not including trades of Las Vegas casino resorts — since the start of the COVID-19 pandemic in early 2020, according to CoStar data.
The property recently underwent $90 million in renovations funded by Brookfield and is slated to see more under new ownership, with the hotel immediately converting to Hilton Curio Collection with long-term plans to convert to the Signia by Hilton brand, which is focused on meetings and conventions business. Hilton will also manage the property.
Hehir said he's excited about what Hilton and the Signia flag can bring to the property.
"We have the benefit of plugging immediately into Hilton global sales on the group sales side and obviously leisure, as well," he said. "We have 200,000 square feet of meeting space, and I've never seen meeting space like this before. It's phenomenal."
Hehir said he views Signia as Hilton's answer to the JW Marriott brand, so it can be in play for large-scale events without a lot of competition within its own brand family.
"Hilton doesn't have a large presence with big-box assets in South Florida, so we saw that as a real opportunity," he said. "We just have a tremendous relationship with them, and the senior leadership at Hilton really stepped up to make this deal happen."
The conversion to Signia will likely take "a couple of years" as the company works through various renovations, Hehir said. However, he said that he's been extremely impressed with the condition of the property, saying Brookfied "did a terrific job as stewards of this asset."
He said Trinity mostly had the deal put together and the plan in place for the resort when it brought Credit Suisse on as a capital partner for the deal. He said this deal is a sign of how Trinity operates by allowing private equity investors to move in the hospitality space without having to establish "sector-specific expertise in house."
"They rely on us to do that, and this is a continuation of that theme," he said.
Hehir said the record performance recently achieved at some of Trinity's other owned hotels helped sell Credit Suisse on the investment potential.
"We were able to take them to some of our other assets and say, 'Look, this is what it was before, and this is what we did. This is the resultant improvement in performance,'" Hehir said. "It's really about the real-life examples."
In the news release announcing the sale, Robert Rackind, global head of real estate for Credit Suisse Asset Management, said the deal is a sign company executives believe in a broader hotel demand recovery — particularly with convention and group demand — and in the long-term outlook for travel to Florida.
“I am delighted that we have been able to diversify our international real estate portfolio with such an iconic property. We see the convention hotel segment as an attractive investment proposition with the Florida economy continuing to experience strong economic growth and favorable demographics,” he said.
The hotel is the eighth acquisition by Trinity's latest fund, which has so far invested $2.1 billion.
Asked whether the deal to purchase the Diplomat is a sign that the transactions market is warming up or if sellers are lowering pricing expectations, Hehir said that his company has continually closed on deals even during a period where interest-rate increases slowed down deals pace.
He said the capital markets likely will continue to gum up the works when it comes to buying and selling high-end hotels — a challenge Trinity seeks to tackle through banking relationships. He cited the company's history with both Blackstone and Bank of Hawaii, which helped get recent deals done. He added he believes financing should be more readily available for deals soon.
"We're firm believers that the capital markets are going to settle down, maybe in the middle of this year or somewhere around there," he said.
In terms of pricing, Hehir said continued strong operating performances have given owners of high-quality hotels really no reason to lower valuations.
"I'll speak for ourselves, and with our existing portfolio, we're not moderating our views on values," he said. "The cash flows are performing, and we have runway on the debt."
He said if anything, the transactions market for hotels should grow hotter in 2023.
"We're seeing what's happening in other sectors like office ... so that capital has to go somewhere," he said. "Maybe hospitality will be the beneficiary of that as the capital markets settle down."