SARE launches program to add 44 properties, valued at R3.5bn, to its US Extended- Stay Accommodation platform2nd December 2019
Following the success of its initial R1.15bn investment into the extended-stay hotel sector, Stonewood Alchemy Real Estate (SARE) will expand its portfolio by adding 44 additional properties in the United States. This will take its total portfolio to 61 properties, with a total value of R4.65bn ($310m).
“Based on the performance of our 2018 portfolio and the entry of institutions and private equity into the extended-stay hotel sector, we feel our timing is very good to aggressively build our current footprint,” states Eldon Beinart, director of SARE.
“Extended-stay hotels provide good long-term cash returns and plug into the US appetite for clean, safe and affordable long-term accommodation.”
Additional drivers include 'home-like' amenities, such as in-suite kitchens, available utensils, on-site laundry and free Wi-Fi. This appeals to a broad spectrum of guests with extended accommodation needs, such as business travellers, migrant or project-based workers, and families that are relocating or on extended vacations.
“The majority of guests are cost-conscious consumers with specific professional or lifestyle circumstances that benefit from an affordable home-like living space. We define a long- stay guest as someone that takes a room for 30 days or more. We have a large number of guests that stay with us for more than six months” adds Beinart.
SARE and its US Partner, Service Star Capital Management (SCM) plan to acquire and develop another 44 extended-stay hotels using the same operational team and methodology applied to its 2018 portfolio.
“The team that was assembled to operate and manage the first portfolio achieved stellar results, yielding in excess of a 30% lift in cash flow since inception and a cash-on-cash US Dollar return of 14% over the past 12 months,” states Beinart.
The total value of the properties to be purchased will be around R3.5bn ($230m), the acquisition program has commenced and will be completed in June 2020. SARE and its investors, together with SCM will provide the equity for the transaction and the senior bank debt required for these transactions has been secured
The 44 additional properties will be acquired and developed via three well defined, diversified portfolio growth strategies, which include a specific pipeline of value–add portfolio acquisitions; acquisition conversions; and new developments with two of the industry’s leading extended-stay brands in specific target markets throughout the US.
During November, the platform closed on its first new Woodspring development in Philadelphia (as part of a three-unit development program), as well as its purchase of seven Woodspring Suites hotels. In addition, the team will close on another six well-located Candlewood Suites during November, which will be converted into Extended-Stay America-branded hotels.
“We have a simple strategy: Take underperforming properties that lacked any operational intensity and apply our team's proven operational and asset management methodology to them. Coupled with this value-based thesis, we will develop brand new properties in geographic locations where we have brand exclusivity and prevailing demand drivers to help us reach our return objectives,” elaborates Beinart.
“The investment platform provides qualifying investors with access to a geographically diversified real estate investment in the United States, in an asset class that has proven to be durable, defensive and successful through multiple economic and industry cycles, concludes Beinart.