Acore's $200 million investment in Graduate Hotels would be a rare transaction in a hotel investment market where owners and potential buyers can't see eye-to-eye on valuations.
The firm behind a $1 billion hotel rescue capital strategy announced earlier this year appears ready to make an investment to the tune of $200 million.
Acore Capital plans to make the preferred-equity investment in Graduate Hotels, a rapidly growing Chicago-based company with 32 boutique hotels in U.S. and UK college markets. The transaction would enable Graduate to both fuel growth and pay off debt. The preferred equity would also put Acore first on top of any existing equity investors for any upside in the business.
The company’s real estate assets have a combined valuation of more than $2.1 billion, according to Bloomberg, which first reported news of the deal.
AJ Capital Partners founded Graduate in 2014 by starting with properties in college towns like Athens, Georgia (home to the University of Georgia), and later added hotels in markets like Oxford, Mississippi, and Tempe, Arizona.
The company more recently moved ahead with plans to expand into urban markets. A hotel on the Cornell Tech campus on New York City’s Roosevelt Island is slated to open next month. Graduate leaders were exploring 100 new markets to enter early last year, according to a Skift report.
Both Graduate Hotels and Acore Capital declined Skift’s request to comment for this story.
It isn’t entirely clear if this deal is included in Acore’s $1 billion Acore Hospitality Partners investment strategy, which launched in February. But preferred equity was one of the financial arrangements — along with senior loans and mezzanine debt — mentioned at the time.
“The pandemic has had a disproportionate and historic impact on the lodging industry leading to unprecedented distress and liquidity issues for hotel owners,” Warren de Haan, managing partner at Acore, said in a statement at the time. “We formed ACORE Hospitality Partners to solve this liquidity crisis by providing hotel owners with the capital they require to continue operations and keep people working.”
The potential investment in Graduate would be a notable accomplishment, given the swelling number of hotel investors but minimal number of transactions seen so far during the pandemic. Hotel owners see higher valuations than what investors are willing to pay, most major hotel executives said on earnings calls in recent months.
But those executives and hotel analysts still anticipate an uptick in transactions and deals is on the horizon.
“After 2009 [and the financial crisis] there was four years of churn of hotels closing and changing hands,” Richard Clarke, a managing director covering global leisure and hotels at Bernstein, told Skift in February. “We’re only 12 months in. It’s too early to say we’re in a state where there aren’t opportunities.”
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Photo credit: Acore Capital reportedly plans to invest $200 million in Graduate Hotels, owners of properties like The Graduate Berkeley (pictured). Graduate Hotels