HOLLYWOOD, Florida — The pandemic was an eye-opening experience for NewcrestImage’s Mehul Patel. He realized that he wanted to wake up each morning and do what he enjoys: making deals and investing in hotels.
That’s the revelation that led Patel, managing partner and CEO of NewcrestImage, to have the company sell a portfolio of 27 hotels to real estate investment trust Summit Hotel Properties and sell its management contracts to Aimbridge Hospitality.
Speaking at the Caribbean Hotel & Resort Investment Summit, Patel said his company is currently in the process of a deal to acquire 16 more hotels, all of which Aimbridge will manage.
“We just feel like if you’re aligned with the right operator, you can do everything you want,” he said. “So every morning, I’m able to wake up and do more deals, able to invest more and let Aimbridge manage for us.”
Along with the scale, the resources, the wealth of people and the technology, Aimbridge has the footprint that will allow NewcrestImage to expand its reach further, Patel said. With his company’s portfolio in Texas, Arkansas, Oklahoma, Louisiana and California, it was difficult to try to expand into places such as New York.
“Today, having the Aimbridge platform, I’m able to buy a hotel anywhere I want,” he said. “I don’t have any of those boundaries.”
Investment Opportunities
With today’s hybrid work environment, the Caribbean islands are a great place for investment, Patel said, adding that resorts allow investors to maximize their dollars.
Five years ago, U.S. hotel investors were focused on full-service hotels that could host conferences, he said. Now that interest is in resorts, even those in the U.S., where hoteliers can give travelers a customized travel experience whether they’re headed for leisure, business, conferences or a mix of those.
Resorts give hybrid workers something extra, and many resorts in the U.S. have changed their programming to adapt to this new demand, he said.
The resort segment is the most talked about segment among investors looking at the U.S., Caribbean or overseas, he said. Guests are willing to spend more at resorts for the spa, food and beverage, and activities — plus there’s the resort fee.
“The consumer just wants to enjoy that time, and your investment is safer because you’re able to get more out of that consumer outset,” he said.
Managing Projects
Over the last 30 years, NewcrestImage has built 80 hotels from the ground up in the U.S., Patel said. Every year, the cost of construction has gone up. Each project is more expensive than the last. A project from 2017 would probably cost 20% more now because of inflation, land costs and new designs because projects need to evolve.
“Every time you are underwriting a project, it will cost you 10% to 15% more,” he said.
The other thing to consider when looking at construction costs is timeline cost, Patel said. Every project today is taking six to 12 months longer than it would have before. When factoring in 12 months of holding cost, there’s interest, human capital, storage facility, lending costs, property tax and insurance.
“So time is most what is costing you, more than the construction cost when you look at both equations,” he said.
NewcrestImage built a Canopy by Hilton hotel in New Orleans, he said. The time frame was originally 18 months, but it took 30 months to finish because of weather issues, labor shortages and supply-chain disruption.
“When you do a construction project, prepare to build it, because if you don’t build it today, if you delay six months or nine months, it will cost even more,” he said. “Don’t wait longer on it. It’s not going to get any cheaper.”