Hotel Business caught up with Pranav Bhakta, VP, operations, Driftwood Capital; Trusha Patel, CEO/founder, Platinum Holdings; and Grey Raines, managing partner, Raines, to get their thoughts on what it was like being a hotel owner/developer in 2024, and what is ahead for the new year.
—Gregg Wallis
How did you perform in 2024? Did it meet your expectations?
Bhakta: As private equity real estate investors, Driftwood Acquisitions was highly selective and returns-driven, which required a wide funnel and patience in evaluating numerous assets to successfully transact. One $32-million deal in 2024 was below our target; ideally, we would be looking at six to eight deals representing at least $200 million in a typical year.
From our real estate development division, we opened the Element by Westin in Melbourne, FL, an upscale 130-key extended-stay hotel that is the only beachfront property in the brand system globally, in June 2024. We broke ground on the 502-key Westin Resort, Spa & Conference Center in Cocoa Beach, FL, which will be a transformative development for the Space Coast of Florida. We also broke ground on the Element by Westin Mission Valley in San Diego, CA, and it is currently going vertical with 150 keys.
Pranav Bhakta, Driftwood Capital
Patel: As a hotel owner and developer, 2024 was a year of measured growth and strategic improvement. We focused on enhancing operational efficiency, particularly in properties that underwent recent renovations, and saw strong returns on those investments. While there were some challenges, such as navigating fluctuating demand patterns in certain markets, our overall performance aligned with expectations. Occupancy rates, ADR and RevPAR all showed solid gains in key locations, and we successfully launched a couple of new projects in Q4 that are now well-positioned for long-term success.
Raines: Even though this year presented obstacles, we remained focused on our goals, committed to our people and adapted to changing conditions. As a result, we continued to deliver strong results for our assets. For 2024, we exceeded our growth expectations in management, launched new construction projects and navigated some of the challenges of new development.
Has the recent drop in interest rates changed your strategy when it comes to trading properties?
Bhakta: For recently underwritten deals, the interest-rate decrease was not significant enough for positive leverage to the direct or forward capitalization rates in most deals traditionally marketed. While returns marginally improved for some opportunities, T-12 or T-24 RevPAR declines year-over-year in domestic leisure submarkets were a greater headwind to cash flow.
Mid- to long-term, if the rate cuts continue, hotel cap rates are likely to compress further, following the strong historical correlation of 90% between SOFR rates and cap rates. This compression could narrow the bid-ask spread, potentially boosting transaction activity. As spreads tighten, look for cap rates to compress resulting in the return of portfolio premiums which should catalyze increased transaction activity.
Patel: The drop in interest rates has certainly influenced our approach. It’s provided an opportunity to refinance existing properties at more favorable terms, which strengthens our cash flow. From a trading perspective, we’ve become more aggressive in exploring acquisitions, particularly for underperforming assets in prime locations that have strong potential for repositioning. Lower rates also make it more attractive to start new developments, so we are actively assessing markets where demand is expected to grow.
Raines: As with all our decisions, we approach buying and selling properties deliberately and strategically. No single factor dictates our direction. While stabilized interest rates play a role, they’re just one part of the bigger picture. We carefully evaluate multiple elements when exploring new opportunities.
Grey Raines, Raines
What are you forecasting for 2025?
Bhakta: We expect loan maturities and sellers’ avoidance of CapEx to present more opportunities for investment next year. Candidly, this was our expectation last year too, and the logjam barely improved. We expect that uncontrollable macro uncertainties will always exist, and our deal team is ready to execute on the right deal where our investment criteria and expected levered returns can be achieved. We anticipate a productive 2025.
Patel: We are optimistic about 2025 and anticipate steady growth across our portfolio. Demand for leisure and business travel is expected to remain strong, with a continued rebound in urban markets. We’re forecasting increased RevPAR and stable ADR growth in our existing properties. On the development side, we plan to break ground on a few extended-stay projects and complete renovations that will further differentiate our assets in competitive markets. Raines: Heading into 2025, our focus remains unchanged: building quality partnerships, relying on our exceptional team and focusing on properties in excellent locations. With growth momentum in the Southeast, we are excited about what’s ahead and remain committed to delivering value for our guests and our portfolio. We expect to build on our achievements and see further success in 2025.
Raines: Heading into 2025, our focus remains unchanged: building quality partnerships, relying on our exceptional team and focusing on properties in excellent locations. With growth momentum in the Southeast, we are excited about what’s ahead and remain committed to delivering value for our guests and our portfolio. We expect to build on our achievements and see further success in 2025.
