Crestline Capital Corporation Leaping Into The Renovation Business by Lesley Hensell
Crestline (NYSE: CLJ), already is a major player in the hotel industry. But through a joint venture with Bedrock Partners II, LP, Crestline will acquire $250 million of hotels over the next two to three years. These 15 to 20 primarily mid-priced, full-service properties have “significant turnaround potential.” In other words, the company will renovate, reposition and re-brand the hotels, taking them into the upscale segment of the hotel industry. Crestline Hotels & Resorts, Inc., is expected to manage most or all of the hotels. Crestline Capital will provide approximately 10 percent of the equity for the joint venture. “This joint venture further leverages our recently announced strategy to co-invest in hotels to obtain management contracts with favorable terms,” said Bruce Wardinski, chairman, president and CEO of Crestline Capital. “The venture will add approximately $250 million to our previously announced $600 million of internal funds. Crestline will benefit from the management fee income for the acquired hotels, while both Bedrock and Crestline will benefit from what we anticipate to be strong real estate returns.” This renovation and repositioning strategy has served as the cornerstone for several hotel companies, including Bristol Hotels & Resorts, which recently was acquired by hospitality powerhouse Bass Hotels & Resorts. Why is the strategy such a powerful one? Well, hotels are basically real estate assets. And as with all real estate assets, value is determined by location, location, location. Hotel operators with repositioning strategies buy worn-out hotel assets in prime locations, such as near highway intersections and tourist attractions. They renovate, buy a franchise that comes with a high-end reservations system, and watch the revenue per available room rise. “There are a number of mid-market properties in great locations that will not be able to survive in their current physical condition,” said Paul Novak, Bedrock II Principal. “Our access to capital gives us a significant competitive advantage enabling us to acquire these properties at attractive prices and reposition them in the upscale sector through major capital expenditures. The upscale sector continues to experience strong revenue growth due to high barriers to entry controlling the levels of new supply.” Elsewhere in the hotel industry, Olympus Hospitality Group and Carlson Hotels Worldwide have teamed up to grow the Radisson Hotels & Resorts, Regent International Hotels, Park Plaza and Park Inn brands. Through a partnership agreement, the companies will implement a “focused franchise development and acquisition program.” The partnership creates Park Hospitality, a joint venture for the companies to work collaboratively to manage and grow the Park Plaza and Park Inn brands in which Olympus has invested. It also establishes Radisson-Olympus Capital Partners, a domestic alliance that will acquire hotels for conversion to Carlson's Radisson or Regent brand and management. Over the next three years, the joint venture’s goal is to build the combined Park Plaza and Park Inn brands to more than 200 franchises in North America. And on the connectivity front, Crescent Real Estate Equities Company (NYSE: CEI) has agreed to let Metromedia Fiber Network (Nasdaq: MFNX) provide direct fiber optic connectivity to 46 Crescent-owned buildings across the country. The agreement covers buildings in Crescent’s Class A portfolio in the Dallas, Houston, Denver, Phoenix, Miami, Washington, D.C. and San Francisco metropolitan areas. Through Metromedia, Crescent’s commercial office customers can obtain access to advanced Internet, data, video, broadband and voice applications over a 100 percent fiber optic backbone and virtually unlimited bandwidth at a fixed cost. | 
