NEWPORT BEACH, CA—Expanding its portfolio’s reach, Twenty Four Seven Hotels isn’t moving too far away from home. Just 45 miles north of its headquarters rests one of the markets the hotel group’s honing in on: Los Angeles.
“If you look at our portfolio, we focus on the upper segment of select-service—and that’s what downtown L.A.’s missing right now,” said David Wani, CEO of Twenty Four Seven Hotels, a hotel management group.
While Twenty Four Seven Hotels has properties in Nevada, Arizona and Idaho, the overwhelming majority of locations in the hotel management group’s portfolio are in California—and that’s everything to do with deal flow; the deal flow activity is much stronger in The Golden State. “We’re certainly working hard, trying to get into Colorado, Oregon and Washington,” the company’s top executive explained. “Again, the deal flow has been fairly limited in all those states, so that’s the biggest impact right now.” The hospitality company’s overall expansion efforts are in western states only.
Twenty Four Seven Hotels’ portfolio is made up of 26 properties; the hotel management group has eight locations in various stages of development. The hospitality company won’t be taking over these locations until they’re fully developed.
A few of these locations are in L.A. There’s a Hampton Inn by Hilton being built in Koreatown; and two properties in development in Downtown L.A.: a Cambria Suites by Choice Hotels and a Home2 Suites by Hilton. “We’re hopeful that those projects are going to really hit it out of the park once they open,” Wani said. His optimism stems from his belief of L.A. becoming a “dynamic market as the development activity there continues,” he said. The company’s in talks with other developers interested in the market.
“Right now, Downtown L.A.’s got the second or third most cranes in the U.S.,” he said. “Everywhere you look, there’s a crane, and the vast majority of it is residential development. Downtown L.A. is almost like how Downtown Manhattan used to be 10 years ago—clears out at five o’clock. The transformation that’s occurred in Downtown Manhattan is what you’re seeing in Downtown L.A.: massive amounts of high-end residential being developed, and it’s really transforming the city to become a 24-hour city versus a nine-to-five city, and that creates its own demand for a hotel.”
Twenty Four Seven Hotels in August entered the L.A. market with the addition of the 216-room DoubleTree by Hilton Hotel LAX – El Segundo. The hotel management group played an essential role in the transaction, providing guidance to the buyer on the transactional side with sourcing, underwriting and acquiring the property. On the capitalization side, the hospitality company assisted by structuring new mezzanine financing in conjunction with the assumption of a senior commercial mortgage-backed security (CMBS) loan. The real estate transaction and loan were both brokered by Holliday Fenoglio Fowler LP on behalf of Umbrella Hotel Group, the hotel’s new owner. Twenty Four Seven Hotels assumed management of the hotel.
For Twenty Four Seven Hotels, the deal also made sense because it had already underwritten a few deals in the area. “We had a real understanding of that market,” Wani said. “That market, very much like Downtown L.A., it’s just on fire. There’s so much development activity going on there.” In his opinion, bringing in the new mezzanine financing added the value needed.
There have been opportunities to acquire more product, but they’ve been outside the hotel management group’s scope. Twenty Four Seven Hotels’ expansion plans are primarily centered around proximity (properties in western states) and segment (the upper segment of select-service). “It’s so important to really understand your brands and understand your proprietary software and tools that those brands provide,” he said. “It’s one thing to grow and add to your portfolio, but you’ve got to have your infrastructure there for operations, sales and revenue management that can support that.” Twenty Four Seven Hotels doesn’t plan to stray from its current strategy.
This approach can be traced back to Wani’s roots at Tarsadia Hotels, where his partner, Drew Hardy, Twenty Four Seven Hotels’ president, also began his career in hospitality. “One of the drivers for that company was being focused in a certain geographic market because then you really understand your market,” Wani said. Varying market dynamics, including underwriting of real estate, employee base, employee laws, competitive set and competitive supply, can quickly complicate matters for management groups.
“The value we’re trying to provide to the equity funds that we work with is to give them solid underwriting and a solid base of understanding, and we feel that by knowing our markets very well we can do that,” he explained.
One of the biggest challenges in Los Angeles, and California in general, is labor. Twenty Four Seven Hotels’ culture is the solution to this obstacle, the hotel management group’s CEO noted. Taking what he learned from his days at Tarsadia, Wani has focused his efforts on developing employees looking for growth opportunities; that’s how the hospitality company expects to retain its employees—through movement internally.
Twenty Four Seven Hotels has been growing its teams internally. The hotel management group now has its own marketing/communications department and an HR team, both of which were added this year. Earlier in the year, the company tapped Gary Gray as its chief investment officer. “The other aspect is purely economics,” the company’s CEO said. “Especially, as we’re doing our budgets for next year, we’re definitely accounting for some fairly significant increases in labor, from a salary standpoint as well as benefits.” Even though California’s $15 minimum wage hasn’t technically kicked in yet, the hospitality group is already seeing its effects.
“One thing we’re seeing in a bunch of different markets is coffee shops—whether it’s Starbucks or Peet’s, etc.—going after our front-desk people,” Wani pointed out. “They’ve been trained. They’ve got the hospitality angle, guest service, etc. They’re offering $15-plus an hour for many of those positions, so it becomes, where, even though that’s not law, the economy is essentially driving you to that point. That’s one thing from a reality standpoint we’re definitely being much more aggressive on, in terms of showing growth for expense lines next year.”
Twenty Four Seven Hotels has 35 employees currently at the corporate level. The hotel management group has more than 1,200 employees overall.
With regard to the future of its portfolio, the hospitality company’s projecting it’ll add 10-15 properties next year. “We’ve got a pool of investors that we’re working with—much larger than we were before—so we feel that’s going to provide us many more opportunities to get deal flow,” Wani said. HB