New Castle Sees Golden Years Ahead for Hotels
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SHELTON, CT—Despite stagnant economic growth and a cautious development environment, some hotel real estate companies are pushing ahead with ambitious growth plans. New Castle Hotels and Resorts could indeed be counted among those organizations. The locally based firm is in a period of “unprecedented growth,” with plans to expand its guestroom portfolio by 20%.
The company will add four new hotels to the market this year, following those up with at least one more in the first half of 2014. New Castle president and COO Gerry Chase says the company has been positioning itself to weather downturns since its inception 30 years ago.
“After going through three downturns, we don’t make the same mistakes that we had in the past,” he tells GlobeSt.com. “We came out of this recession a little bit better than we had in the past. We really put our resources—people and financial—toward some niche markets, targeted some areas we’re familiar with, and with some past relationships and some new relationships, we developed a group of properties we could target and we have quite a few in the pipeline behind them as well. These were projects in niche markets, they were the right projects at the right time, and we were able to get them funded, which during this period of time is no easy task. Good projects can still get done in this market, and they’re very unique projects. None of them are cookie cutter. They’re all very unique and in niche markets.”
The projects combined cost about $155 million to bring to fruition, with combined leverage at an average of about 30%. Financing was obtained through both existing and new relationships with capital sources.
“There are opportunities in every cycle, and we spent considerable time during the downturn strategically sourcing deals that would come online as the market regained full steam,” says David Buffam, CEO of the company. “We also have a substantial pipeline of diverse projects that will mature as the year progresses.”
Among the firm’s plans is the reopening of the Algonquin Resort located in St. Andrews by-the-Sea, NB, and with it, the Canadian debut of Marriott’s Autograph Collection. New Castle acquired the landmark resort in April of 2012 and is undertaking a $30-million reconstruction that will be completed in the second quarter of this year. New Castle is doing that project with Southwest Real Estate, partners in Canada the firm does several projects with.
Chase says, “When the Algonquin became available, we knew that we had the background, the experience and the heart to properly restore and reposition a treasured Canadian landmark.”
Portland’s famed Eastland Park Hotel is also undergoing a total $50-million renovation, and in the second quarter of 2014, will open its doors as the Westin Portland Harborview. New Castle teamed with Rockbridge Capital, as primary investor, in this acquisition. “It’s a conversion of a 100-year-old historic property we’re resurrecting into a first-class luxury Westin hotel, which is going to be a cornerstone in the Portland market,” says Chase. “It’s a great location, in the arts district, and great for the Downtown market.
“We’ve developed a sweet spot for acquiring under-managed, under-flagged, undercapitalized assets and restoring them to good health,” says Chase. “Both the Algonquin and the Eastland are perfect examples of independent hotels that will benefit from carefully designed renovations, well-considered flag selection and solid management that respects the hotel’s history.”
New Castle will also build new properties, despite the dearth of new development of lodging assets. It’s working on a combination Residence Inn and Courtyard by Marriott in Syracuse’s Armory Square, and it’s gearing up to break ground on a new Westin in Jekyll Island, GA.
The Inns at Armory Square, to open in May 2013, features a 78-room Residence Inn and a 102-room Courtyard by Marriott under one roof. The project is Downtown Syracuse’s first new build hotel in more than 50 years and the largest, non-office building endeavor in more than 25 years. The hotels are part of the renaissance of the Armory Square section of Downtown Syracuse, an urban lifestyle center of shops, restaurants and theaters a short distance from the University.
The 200-room oceanfront Westin Jekyll Island Hotel will break ground later in the first quarter and will become the anchor hotel for Jekyll Island’s new convention center, which was completed last May 2012. It’s believed that the convention center will host about 120 events per year, helping to revitalize the Island as a leisure and conference destination. The property is one of only a handful of convention center hotels currently in the works.
“There always are plenty of takers for big, high profile deals in obvious markets,” Chase says . “Experience has shown us, however, that a carefully selected, challenging deal in an unexpected market can be just as rewarding.”
The lack of development has also worked in New Castle’s favor, ad he competition isn’t as high on the new build side. “There isn’t as much new build development since 2007, and it’s still a very slow pipeline in new build,” says Chase. “There have been a lot of transactions on the acquisitions side, though. But we aren’t a portfolio buyer. We buy one asset at a time to get the best return for ourselves and our partners. That area has competition, but we’re very creative. We’re a niche developer in niche markets. The competition is where everyone is going after the same product. It’s not as easy to go after projects that need to be repositioned. There’s nothing we love more than going after product that’s under managed, under-flagged and under-capitalized. That’s a sweet spot for us.
It’s a strategy that has Chase optimistic. In addition to the five announced projects, he reveals, “we’ll probably add another project to our portfolio before the year’s over. Quite candidly, if I can do that every year, we’ll be a pretty hefty group.”
He’s also bullish on the lodging sector overall. “I think in the next five years, we’re going to see good, strong, steady growth in our industry,” says Chase. “This is the right time to be investing in hotels, and we’re certainly in that bucket. We see the next five years as some of the golden years of our industry.”
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