MCR Raises $300 Million for its First Hotel Investment Fund
MCR Hospitality Fund on Track to Acquire 25 Hotels by End of 2018
MCR purchased this Courtyard by Marriott Milwaukee in February for $24.5 million ($145,000/room) with proceeds from its first fund.
MCR, the hotelier behind the High Line Hotel in Chelsea and the upcoming TWA Hotel at JFK, has just closed on its first fund. With a total raise of $300 million, the MCR Hospitality Fund LP garners $1 billion in buying power when accounting for leverage, according to Russ Shattan, senior vice president of acquisitions and development.
Shattan tells CoStar News that the fund plans to acquire up to 50 hotels, as the assets average about $20 million each in cost. MCR is on track to acquire 25 hotels by the end of 2018. The fund has five hotels totaling 550 rooms in the pipeline that are expected to close by the end of August 2018.
MCR, which calls itself the seventh largest hotel owner-operator in the U.S., has already invested $62 million in equity to acquire 11 hotels totaling 1,272 rooms, for a total transaction volume of $160 million. Of the 11 hotels, four are Marriott-flagged and seven are Hilton.
The fund first began raising capital in May 2017, contemporaneously buying while raising money, Shattan said.
"The fund is not operating on a market-timing strategy. Rather we see limited-service as an appealing, stable, long-term investment. We are bullish on the select-service hotel asset and are buying to hold (five to seven years). The fund was envisioned with a 10-year life. The beauty of this business plan is if the market does soften, we will just hold for longer. So this is not undertaken as a yield-driven move but as a long-term strategy," he explained.
The acquired hotels are within strong business and leisure markets, including Chicago; Salt Lake City, UT; Cincinnati, OH; Milwaukee, WI; Richmond, VA; Providence, RI; Champaign, IL; and Allentown, PA.
The fund's sweet spot is select-service hotels in strong secondary markets, where there is strong leisure and business travel. It will close on five more hotels by August. One of those will be in suburban Washington D.C., near northern Virginia, Shattan said.
"Our strategy is to target strong secondary markets. When we do go for downtown locations, we pick smaller ones, e.g. Providence, not Boston. Salt Lake City, not Silicon Valley," Shattan said. "For instance in Chicago, we are in the Mount Prospect neighborhood, which has a strong corporate office and industrial presence. Milwaukee is another example of a smaller downtown. The bank of Montreal built an office there and there is a new basketball arena."
One-half of the hotels MCR will buy will require some capital investment, while the other half have already been renovated, Shattan added.
"That part of owning properties is very cyclical - every seven years you need a refresh (new carpet, vinyl, seating)," he said.