Ken Hamlet, a 30-year hotel industry veteran and former CEO of Holiday Inns, has been through several recessions and witnessed an investment period when interest rates eclipsed 20%. But he said none of that compares to the damage from the fallout of the pandemic.
“This is the worst dislocation I have seen,” Hamlet said in an interview. “Period. All stop.”
The situation is now turning into what he calls a “robust buying opportunity.”
New York-based real estate investment firm Olive Tree Holdings, which said it has a $1 billion-plus portfolio in workforce multifamily properties, last week entered the hospitality sector with its unveiling of Olive Tree Hotels & Resorts. With Hamlet at the helm as CEO, the new group will invest more than $500 million over the next three years in select-service hotels and riskier full-service properties that may take longer to produce returns.
“We have been besieged with opportunities,” Hamlet said. Many in the hotel industry are “anxious to sell and get off of their debt.”
Olive Tree already has a contract with one property in the Northeast and has put a bid in for another on the West Coast, he said.
Hamlet, who joined Olive Tree about 10 weeks ago after “fortuitously” meeting with its founders this year, said he had put together an investment thesis after realizing the toll the pandemic would wreak.
“The hotel industry was in for a very tough time,” he said, adding he recognized that signaled the right moment to “buy undervalued assets as revenue per room and hotel occupancy tank.”
The U.S. hotel industry’s March occupancy rate totaled nearly 55%, while revenue per available room was $58, the highest figures for any month since the COVID-19 outbreak, according to industry tracker STR, a unit of CoStar Group. Still, despite the pickup, levels remained “well below the pre-pandemic comparable of March 2019,” STR said.
For instance, the March occupancy rate was still about 20% lower than the March 2019 level, while revenue per available room was 36% below, STR data showed.
As to what’s on his shopping list, Hamlet said select and limited-service hotel properties will be Olive Tree’s “sweet spot” even though it will also be open to the right full-service opportunities. Properties close to universities or colleges; office buildings or office parks; airports; hospitals; convention centers; shopping centers with retail growth; and in neighborhoods with a certain median household income and “good accessibility to highways” are among what Olive Tree will consider as “demand generators,” he said. Areas with a “robust technology or biotech economy that’s continuing to grow” also is attractive.
Full-service hotels have fared worse than limited-service hotels. For instance, the average occupancy rate in the 12 months through March totaled about 36% for full-service hotels, compared to 48% for select-service hotels, according to STR.
“We want to buy hotels that have decreased revenue per room and are potentially in need of capital” or need a better way to manage properties, he said, adding there’s a lot of consolidation in the industry.
Hamlet acknowledges Olive Tree won’t be alone in wanting to capitalize on a sector in flux. “We have a lot of competition,” he said.
But he said there are things that will set Olive Tree apart, as illustrated by Olive Tree Holdings’ “fantastic track record in multifamily.” Thanks to its access to data through the use of artificial intelligence, he said the new hospitality group, for instance, will be able to pinpoint where potential new customers are coming from and market to them specifically. It also will be able to track social media to gauge customer experience on an hourly “frequent on-demand basis.” The group also has a “vertically integrated construction” team that can tailor hotel designs and finishes based on what travelers in different locations desire, he said.
Founded in 2017, Olive Tree Holdings has grown to a portfolio of 8,000-plus units across 32 properties, according to its website. In July, it announced it sold a 167-unit workforce housing community in the Atlanta suburb of Decatur, Georgia, for $13.1 million, more than double its purchase price of $4.82 million three years earlier.
“We are in a business that’s high touch,” Hamlet said, adding he expects there’ll be a big pent-up demand for leisure travel. “We have tremendous data and resources and AI where we can capture more share of customers. We intend to use technology to make guest experience a wow.”
That wow experience also includes giving its hotel lobbies the appeal of a coworking facility.
“We are not going to compete in the office sector,” he said. “Think of space in our lobby like WeWork where you can work and socialize and are not isolated in an unique environment. Our hotels will be office away from home.”