MCR Closes $300M Hotel Investments Fund
The New York City-based hotel owner-operator is focused on secondary markets.
NEW YORK CITY— MCR, the seventh largest hotel owner-operator in the US has closed the MCR Hospitality Fund LP. The fund’s capital commitments total $300 million, providing MCR with $1 billion in purchasing capacity. The company is headquartered in New York City and has a satellite office in Dallas.
“By investing strategically and being disciplined in our approach to capital allocation, we have continued to produce strong investor returns,” says Tyler Morse, CEO and managing partner at MCR. He adds the proceeds raised will be used to acquire additional properties at favorable terms.
Russ Shattan, SVP acquisitions & development at MCR, tells GlobeSt.com, “The $1 billion will translate into 50 hotels, as on average they are about $20 million each.”
MCR has a $2 billion portfolio of 104 hotels with more than 12,000 rooms in 27 states. Although the company is known for co-owning the High Line Hotel in Chelsea with the Brodsky Organization, the fund is not focusing on gateway urban locations.
“The fund’s target is secondary markets, such as Salt Lake City, Providence, Milwaukee,” says Shattan. “It may invest in Long Island, New Jersey, Connecticut and Westchester. But the fund will not be for purchasing hotels in New York City.”
Loews Hotels CEO Jonathan Tisch had recently expressed concerns over a 13% decrease in global travel to the US. Shattan distinguishes Tisch’s comments as referring to international and inbound tourism which mostly affects properties in gateway cities such as New York City, Miami, San Francisco and Los Angeles.
“The fund specifically doesn’t invest in those properties because we are not making big bets on macro concepts like inbound tourism, Chinese visas, the strength of the dollar versus the euro or anything like that,” says Shattan. “We’re making bets on limited service and suburban hotels. The demand generators are within four to five miles of each of our properties.”
The fund targets investments in Marriott and Hilton select service and extended stay hotels across the country.
He further explains MCR bought hotels in Champaign, IL, across the street from the University of Illinois, which has a student population of 50,000. They also bought hotels in Lehi, UT, a suburb of Salt Lake City. The area has a concentration of tech companies, including a large Adobe campus. The demand is mostly business travel or visitors to headquarter locations. “We are insulated from the transient tourism trends,” says Shattan. ”That’s why we like investing in those hotels. We think it’s a safer, better investment. It’s a steadier investment.”
Since August 2017, the fund has acquired 11 properties, comprising seven Hilton hotels (776 rooms) and four Marriott hotels (496 rooms). The average purchase price was $126,000 per room, 20% below replacement cost, according to MCR. The acquisitions total $160 million in transaction volume and $62 million in total equity, amounting to 20% of the fund’s total capital commitments.
The fund plans to acquire 25 hotels by the end of 2018, including five hotels in the pipeline that are expected to close by the end of August 2018.