UPDATED, Aug. 20, 2020, 9:30 a.m.: A Miami-based private equity firm is planning to launch a $500 million fund to invest in distressed and value-add hotels in North America and the Caribbean that would be branded as Hilton properties, The Real Deal has learned.
CGI Merchant Group would acquire about 20 properties in the next few years, said Raoul Thomas, CGI’s founder and CEO. The venture intends to take advantage of the buying opportunities the pandemic has created.
“We’re very, very bullish on the long view of the hospitality sector,” Thomas said. “We think that values will be significantly depressed.”
Hotel owners across the country are struggling to survive, as air travel remains limited and many states are still only partially open. A recent report from the American Hotel and Lodging Association shows that nearly 25 percent of all commercial-backed security loans for hotels are 30 or more days delinquent, citing data from Trepp.
In May, Starwood Capital Group’s Barry Sternlicht said the pandemic had not yet resulted in a fire sale of hotels, but his firm was on the hunt for those deals. More recently, a Starwood fund was looking to raise $11 billion for real estate and distressed bets.
The CGI fund will purchase hotels in the U.S., Canada and the Caribbean at prices well below those last year, Thomas said. Some hotels have sold for discounts as high as 30 percent during the pandemic.
The hotels would be under the Hilton brand, but the company is not a financial partner in the future acquisitions.
The fund plans to reposition the properties under a new brand geared toward social consciousness, including community, health and sustainability issues.
Hilton was not immediately available for comment.
Hilton, one of the largest hotel companies in the world, has 18 brands across 6,200 properties with more than 983,000 hotel rooms. In its second quarter earnings call, Hilton Worldwide Holdings said it had opened 60 hotels with 6,800 rooms despite reporting a net loss of $432 million.
“We’re not crying in our milk. We’ve got a business to run,” CEO Chris Nassetta said. “This too shall pass.”
CGI Merchant Group, a private equity and alternative investment management firm, focuses on value-add opportunities in South Florida. In recent months, it has spent more than $400 million in multiple asset classes.
Thomas said the fund is positioned to be the first out of the gate.
“We believe there will be a recovery. It’s what you do with the assets [once acquired],” he said.
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Clarification: Hilton is not a financial partner in the fund but the acquired hotels would be under the Hilton brand.