HB EXCLUSIVE: Davis Hotel Capital launches, identifies investment sweet spot

DENVER—With more than 70 years of collective experience behind them, Geoff Davis and Angelo Stambules have recently formed Davis Hotel Capital (DHC), a hotel investment banking and mortgage brokerage firm here, with a second office in New York City.

“I left HREC Investment Advisors last year to go to the private equity side,” said Davis, senior principal at DHC. “I decided after an eight-month stint with another firm that I wanted to start my own platform.”

Davis, who spent a good portion of his career at HREC, has arranged more than $6 billion of hotel capital and completed more than $14 billion in total hotel industry transactions. Most recently, he was a partner and served as chief investment officer at León, Mayer & Co., a private equity and investment banking firm specializing in acquisition, small-cap corporate buyout and turnaround investments.

His partner, whom he met in the late 1990s, has served in senior leadership positions within Starwood Hotels & Resorts Worldwide Inc., before it was acquired, and with hospitality giant Marriott International Inc. Stambules also held senior-level banking positions at Capmark Finance (formerly GMAC Commercial Mortgage) and GE Capital, where he involved himself in sourcing, structuring and underwriting more than $10 billion of hotel loans.

Angelo Stambules
Davis Hotel Capital

“It’s been a good run,” Stambules said. “I’m excited about this next stage in my career. I’m happy to be partnering not just with an industry colleague, but also an industry friend. I’m really looking forward to building the snowball that is already well underway.”

The hotel investment banking and mortgage brokerage firm’s overall main objective is twofold. “It’s not really to do property brokerage, which has always been my history, but it’s really more focused on being an advisor in the capital market side, arranging debt—which could be acquisition financing, refinance, construction finance, renovation financing, all those sorts of things,” Stambules explained. The firm’s other main focus: investing directly into transactions and opportunities as they come along. “We have formed a pool of investors to direct investments and deals, and we’re actively seeking acquisition and development opportunities with partners,” he noted. “Some of those partners are very well-capitalized developers who bring capital to the table, as well as expertise.”

If a potential opportunity arises, the firm will then put a capital stack together, debt and equity, for the benefit of its investors. Instead of taking fees, DHC will become part of the ownership structure. “That’s more of a merchant banking model than a brokerage model,” Davis said. “I think that’s what’s going to make this company different.”

Other services the newly established hospitality real estate firm provides to hotel owners and investors include note purchases; structured finance, including mezzanine and junior debt, as well as preferred equity placements; expert witness testimony; buy side representation; asset management; and sourcing third-party equity for transactions.

What DHC is relying on for its overall success in the industry is the relationships its founders have built over the years. “We just have a lot of relationships in the industry,” Davis said. “Fortunately, I think both of us have done things the right way in our career, and there’s a lot of people out there who like us and trust us, so I think that’s a good foundation and the reason why we’re getting opportunities right off the bat.”

These partnerships have already assisted the firm in the past few months. For instance, DHC already has debt placement assignments underway, and the company is also pursuing two or three properties on the acquisition side. Additionally, DHC is working on a couple of programs in the hopes of beginning “some ground-up development in certain markets that we think can tolerate it, which is sort of a contrarian viewpoint right now, but I think we have good partners potentially lined up for that,” he added.

On the investment side, right now the company is focusing on value-add opportunities, including heavy renovations, repositioning and rebranding of properties. “We have the capacity to do larger deals, including development deals, but I think most of the transactions that we do in the first year here on the investment side will probably be more in the $10-million to $40-million range all in,” Davis noted. “Those are easier to capitalize.”

As far as its advisory business is concerned, the firm is currently processing some acquisition refinancing and advancing some ground-up capitalization work. These deals have ranged from $15 million to $20 million. DHC doesn’t expect to go under $10 million.

The sweet spot for the business overall: $10 million to $50 million, which “dovetails well with our previous history, as well—that strike zone,” Stambules pointed out.

Geoff Davis
Davis Hotel Capital

Davis’ take on the current market is primarily positive. He believes the industry is fairly healthy from an operations standpoint; what has changed, however, is there’s now an “air of caution by investors in the market.” DHC expects to use this shift in perception by leveraging its past relationships with lenders. “The availability of debt is getting more constrained and the cost of debt is going up; when you have those factors happening, somebody who can provide creative solutions on the capital side becomes very valuable, so I think it’s actually a very good time for us to start this,” he noted.

“We are in a pretty healthy position, but, at the same time, more deal structuring is going to be required as folks retrench and revisit some of their assumptions on where things are going,” Stambules added. “The recent lift in the stock market is reflective of a generally positive economic outlook, at least until we get into it and see what the nitty-gritty is, but there’s a renewed sense of stability and growth, whereas prior to the election, folks were bracing for some kind of correction and that’s less discussed these days than before.”

Ideally, Davis would like to see DHC grow to three or four offices, with six to 12 hospitality real estate veterans on staff. This year, the firm would like to hire a junior analyst who can help with analytical work and communicate effectively. “One thing we used to teach our analysts at my old companies is how to deal with high-level people on all sides of the transaction,” Davis explained.

Growing personnel organically is how Davis envisions the expansion of DHC. For him, it’s about hiring individuals the firm is comfortable with instead of bringing on people just to fill an office. “This is going to be more of a partnership than a king and a bunch of employees. I’m looking for partners, not employees. You have to be pretty selective if you bring in guys at that level, so usually it’s someone you’ve known for a long time and someone whose skill set is complementary to what we’re doing,” he said.

“I think you reach a stage in your career where, yes, it’s fun to do the advisory work; it’s good to work for other people, but this is also an opportunity for us to be investors in the industry, active investors with partners and have equity in deals,” Davis said. “I think that’s unique and tantalizing at this stage of the game.” HB

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