SC Hotel Investor Caps a Run of Deals While Watching Impact of Rising Debt Rates
POST & COURIER - CHARLESTON, S.C. – OCT 30, 2022
A Charleston hotel investor has pulled off the lodging industry’s version of a double hat trick. And it’s aiming to size up more deals as rising interest rates add a disruptive new wrinkle to the acquisition landscape.
The Montford Group and Opterra Capital of south Florida announced last week that a joint venture they launched this year snapped up a portfolio of three Marriott and Hilton-branded hotels in the Carolinas, including one in Myrtle Beach. The others are in Charlotte and Roanoke Rapids N.C. Financial terms were not disclosed.
The 430-room Sunbelt deal “caps an acquisition streak of six hotels and developments this fall,” the partners said in a written statement. The spree includes the Aloft by Marriott near Tanger Outlets in North Charleston, which changed hands Oct. 13 for almost $13.6 million.
All the while, the firms are in the back stretch of completing their 131-room Moxy by Marriott on the upper peninsula — a February opening is planned for the Meeting Street property — and they recently lined up about $52 million in financing for a new 13-story lifestyle hotel that will operate under the same brand in Charlotte.
The new owners of the Aloft near the Charleston Area Convention Center and up the street from the airport and the neighboring Boeing 787 campus are planning a $3 million renovation of the property, which opened in 2008 and is now being managed by Aimbridge Hospitality.
The acquisition is the fifth purchase or development project with a combined 708 room keys for The Montford Group in the Charleston market. Patel said he now hopes to secure the final building permits early next year for the long-planned wedge-shaped Thompson by Hyatt where Morrison Drive and Meeting Street converge. “One of our priorities is to grow our local portfolio,” Patel said, citing the “strong market fundamentals in our hometown.”
The Montford Group and Glenn Alba’s Opterra have been working together on lodging deals and other commercial real estate transactions totaling more than $700 million since 2019, such as the $13.85 million acquisition of the Regions Bank-anchored office building at 170 Meeting St. last year. They put their initials together to form TMGOC Ventures in May, kicking it off with the purchase of a Savannah hotel. Patel said the two firms began developing a business plan as the initial shock of the COVID-19 pandemic and lockdowns began to wear off in 2020.
“We slowed down for a couple of months, just like anyone else,” he said. “It was nothing like we’ve ever experienced. We were trying to figure out what was happening.” They determined that demand for real estate, hotels included, was poised to tilt in favor of smaller drive-to visitor destinations like Charleston that suddenly were drawing droves of newcomers from big cities as the health crisis wore on. “Quality-of-life became a primary focus for everyone, whether you’re working in New York, San Francisco or Atlanta,” Patel said. “And at the same time you realize life is too short, you have to enjoy it. So, we started looking at secondary, tertiary markets, which we believe will remain strong. … That really was our trigger point. We wanted to get aggressive.”
Now, nearly three years after the pandemic upended the industry, the hotel market is set to shift gears once again as the Federal Reserve jacks up interest rates to tamp down rising prices. “Debt is a lot more expensive than six months ago, so we’re repricing assets, and we’re seeing valuations correct themselves,” he said. Patel noted that hotel loans typically roll over every five to seven years and that a wave of refinancing activity is on the horizon for 2023. The Fed’s inflation-busting moves are likely to create a debt-driven “dislocation” in the market as borrowers try to replace their mortgages. “I don’t think people priced 8 percent or 8-and-a-half percent rates into their refinancings. … Now all of the sudden that changes dramatically the performance of the asset,” he said. In the inevitable worst-case scenarios, some borrowers will be forced to sell.