COLUMBUS, OH—The hospitality industry is approaching heights notseen in decades and scores of investors are ready to kick in bigmoney. The private equity firm Rockbridge has justclosed its Rockbridge Hospitality Fund VI L.P.after raising $438 million, for example, far exceeding its originalfund target of $350 million.

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As reported in GlobeSt.com, PwC issued a report on Monday that predicts theindustry's occupancy level will reach 64.9% in 2015, the highestsince 1984. But Jim Merkel, Rockbridge presidentand chief executive officer, tells GlobeSt.com that even though thehistoric downturn has ended, “there are a lot of hotels that needsignificant infusions of capital.” During the recession many ownersfailed to make needed reinvestments in their properties, and thisopens up opportunities for firms like the Columbus-basedRockbridge, which has invested in and added value to hundreds ofhotels over the last 20 years.

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The fundamentals in the industry are “as strong as they've everbeen,” he adds. But the historically low growth of new supply hasgiven investors even more confidence in hotels and Rockbridgeexpects to find solid yields in markets throughout the US,including smaller secondary markets.

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“There are great deals all over the country,” Merkel says.Rockbridge plans to use the same strategy it has over the years andbuild a portfolio of investments diversified both by market andproperty type. He points out that after 9-11, hotels in the vauntedcoastal markets saw a steep decline in business, but ones locatedoutside these regions experienced only a tiny drop in occupancy.“At that point in time it was good to be diversified.”

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Fund VI has already closed on 11 investments in eight states,representing $131 million of capital commitments and $515 millionof total capitalization. Triton Pacific Capitalserved as the exclusive placement agent for Rockbridge Fund VI andMorrison and Foerster LLP acted as legalcounsel.

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A typical deal for Rockbridge was its 2013 purchase of anon-performing loan for the historic CanterburyHotel in Indianapolis. Rockbridge gutted the building andspent about $130,000 per unit transforming the property intoLe Meridien, and will reopen the now four-starhotel this December. Merkel expects to make a total of up to 40investments with this latest fund. In addition to the 11investments already done, the firm has another four in closing.

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The reason for optimism is relatively simple, Merkel says. In afew years, “as sure as we're sitting here, you're going to bepaying more for your hotel rooms than you are today.”

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But the market is also changing and investors need to respondappropriately, he adds. Millennial travelers, for example, are nowthe largest generator of demand and they typically demand differentthings from hotels. A greater focus on green technology andhealthier cuisine, including the use of local food producers, hasbecome required. Le Meridien now includes Spoke &Steele, a restaurant which will feature Midwestern cuisinethat Merkel says will appeal to locals and give travelers a senseof local food traditions, just the thing millennials findappealing. “It's our job to take hotels that are notwell-positioned for that demographic and make them attractive tothose travelers.”

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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.