Wright Investments’ second fund eyes $400M in hotels

MEMPHIS, TN—Having acquired some $180 million in hotel assets after deploying its first hospitality opportunity fund, Wright Investments is looking to double down on its newly raised Hospitality Opportunity Fund II (HOF II), with plans to acquire up to $400 million in hotel properties.

As with the first fund, which secured eight geographically diverse hotels, Wright Investments over the next 24 to 36 months intends to add a variety of properties, including product from major chains, such as Hilton, IHG and Marriott International.

“We’re thoughtful that we’ve been in a very extended bull market, and we’re mindful that you have to be a little bit more vigilant against any potential future downside because we know 100% that there’s going to be another cycle,” said Larry Wright Jr., president/CEO of Wright Investments. “The way we’re insuring against that at this point is looking at assets to buy at a very nice discount to replacement cost, with existing cash flow, or we’re looking at very large repositioning assets…a total business plan repositioning that will allow us to come out of a renovation in the next 18 to 24 months with a totally repurposed asset with a healthy, defensible capital structure.”

Having experienced several industry cycles since it was founded in 1982 by Larry Wright Sr., the company, based here, has been involved in more than 180 hotels in 27 states and Washington, DC, via ownership or management.

“We don’t have to have a fund structure to do deals…but now we’re back with the full fund structure. We’re using a lot of ‘friends and family’ capital as well as [from]our private-equity partners,” Wright told Hotel Business. “Our goal is to augment our three existing business lines: the investment side, our third-party management and management of our owned assets, and our project management, including construction management and everything from simple FF&E PIPs to comprehensive renovations, which we’ve done for 35 years.”

Wright indicated there are opportunities to be had, but stressed the company is not a cycle player, adding Wright Investments historically seeks suitable assets on a consistent basis.

“We’ve always been buyers and now we’ve got a great track record with our Fund I, and it’s time for us to do Fund II,” said Wright. “Our strategy is value creation for management, renovation, repositioning. “We’ve had some groups approach us about buying some cash-flowing legacy assets that on an individual basis we would explore as well.”

Larry Wright Jr.
Wright Investments

The CEO characterized the company as “broad and omnivorous” in its appetite for markets where it looks to invest. “We did everything in our last fund from Hilton Head to Jackson Hole to DC Metro to New Orleans. We like a story about the real estate and we like to be where there’s a sense of place. If you can walk outside the hotel and feel there’s a reason to be there, that there’s some uniqueness to it, that’s something that definitely draws our attention,” said Wright.

HOF II’s target markets could also include more than one asset, the executive noted. “There are benefits to clustering. There’s market knowledge you can utilize, there’s potential staffing options, potential sales and marketing you can overlap. So, without question, given the right opportunities, we would definitely seek to double-down on markets that we’re already comfortable with,” he explained.

Without divulging specifics, Wright said HOF II already has one hotel under contract and a “few others” in negotiations.

In raising HOF II, the CEO said the company has relationships with large private-equity firms; small, syndicated family offices; and ultra-high-net-worth families. “We have a panoply of good capital sources, and our goal is to do one deal with them, nurture that relationship carefully, then do multiple deals with them over the next several years,” he said.

The ownership structure varies depending on the deal. “In a perfect world, we’re probably anywhere from 10% to 40% of the ownership,” he said, indicating the investment amount is deal dependent.

“In our history, we’ve managed hotels that are close to $20 million in revenue and we’ve also done an 88-room hotel that was a great investment… We probably like to keep it—at minimum—at $10 million on a deal. Depending on what we see—I don’t know if I would say there’s no maximum—we have the capability to do portfolios and very large single assets that could be a few hundred million dollars,” said Wright.

“Every deal is a snowflake,” said the executive, acknowledging he borrowed the line from a New York friend. “By definition, real estate is special and unique, so you have to look at each asset through a prism of: ‘What’s perfect for this asset?’ We try to understand each asset intimately, then create the plan that works for the opportunity and the constraints of that asset.”

Given some of the recent disasters impacting several destination markets, Wright was asked if HOF II might be eyeing distressed properties in areas such as California, Texas and Florida.

“Absolutely. We’re always looking for opportunities that are good for both parties and achieve what the investment plan is for that. Obviously, if you’ve had a casualty event and your desire is to take your insurance proceeds and do something else and let us come in, [know]we’ve been on both sides of that. We’ve had problems and hurricanes and things like that. It wouldn’t be predatory. It would be: ‘What is the market, and what is good for this group?’ Everybody has different desires and horizons,” said the CEO. “We would always be willing to talk to anybody if we thought there was a mutually good outcome.” 

Wright Investments’ own hold/exit strategy runs the gamut from three to 12 years, with an average target of three to seven years. “For us, if there’s a strong hotel market that seems to be sustainable and there are other enticing metrics, such as barriers to new supply, we will really go to any market in the United States as long as there’s a good story,” said Wright. HB

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