Moody National REIT I to Grab Gargantuan Hotel Portfolio

A lot can happen with the stroke of a pen, including the transformation of a hotel portfolio.

Brett Moody

A lot can happen with the stroke of a pen, including the transformation of a hotel portfolio from less than a dozen assets to more than 150, and that is precisely what Moody National REIT I Inc. is preparing to do. The lodging REIT has entered into an agreement to acquire a 149-property collection of hotels, known as Project 149, from an unidentified third party. But the overnight expansion of a portfolio doesn’t come cheap; Moody National will shell out approximately $1.7 billion for the 14,000-room portfolio.

The group of select-service hotels, operating predominantly under the Marriott and Hilton Brands, spans the U.S., with the bulk of the properties located in California, Arizona, Texas and the Northeast. Moody National is undaunted by the nearly $2 billion price tag.

“There are very few opportunities to acquire a diversified portfolio of 149 assets with 14,000 rooms over 32 different states in one of the most attractive capital markets in decades,” Brett Moody, CEO of Moody National Cos.,  told Commercial Property Executive.

Moody National has been snapping up properties in one-off deals here and over the last several months–recently the company entered into separate transactions to acquire the 227-room Hampton Inn Boston for $57 million and the 208-room Embassy Suites Nashville for $66.3 million–however, there’s nothing like snagging a host of assets all at once. “Extended length of the robust hotel cycle, and strong capital markets allow for the purchase of this portfolio; which should achieve a healthy cash-on-cash return and capital appreciation from renovations,” Moody said.

Most of the Marriott and Hilton properties have recently been renovated, and Moody National plans to pick up the pace and complete the remaining brand-required upgrades in short order.

It’s a really, really good time to be in the business of investing in select-service hotels. Select-service transaction volume increased to a near-record $12 billion in 2014, due in no small part to portfolio transactions, according to a report by commercial real estate services firm JLL, And investors continue to be keen on the hotel sub-sector. Per the JLL report, the hotel investment community’s RevPAR forecast is “the most optimistic on record, as operating performance among select-service hotels remains strong.”

And there are more high expectations for the select-service industry. Moody added, “We have had several years of a supply-demand imbalance that is predicted to continue for several more years.”

Moody National plans to rely on financing and a portion of the remaining proceeds from its public offering to fund the Project 149 acquisition. Beyond the planned purchase, it’s business as usual for the REIT.  “The strategy is to continue to build a portfolio of well-branded hotels in high barrier to entry markets, and then sell to a public company or long term holder of a sizable and stable portfolio.”