The Davies Group will look to take advantage of the current distressed environment and will be concentrating initially on foreclosure opportunities. Many hotels are skating on thin ice and unable to pay off debts. He sees this as a good opportunity for a developer to come in and turn things around by improving the existing site or converting the space for a different use.
In addition, says Davies, the company will be working selectively on exceptional development opportunities in areas with extremely high barriers to entry and realistic underwriting assumptions. "Creative minds are rewarded in a recession," remarks Davies. "Entrepreneurs in a recession usually do very well."
Davies' exclusive focus since the mid 1980's has been hotel and resort properties. His biggest recent project involved the 362-room Omni Hotel, which will open in San Francisco next month. It was Davies' idea to convert the financial district office building at 500 California. St. Dallas-based Omni Hotels liked the idea, purchasing the property for approximately $35 million. The redevelopment figures out to $300,000 per room.
Davies is looking very selectively at new development opportunities and is confident that, on a selected basis, it is a good idea to develop hotels in a bad economy. "To open a full-service hotel takes about two years," says Davies. "In this economy, labor, materials and services are cheaper than they were about two years ago, so the development costs of the hotel will be lower."
Davies plans to take advantage of cheaper properties and developments costs, assuming that the economy will improve in two years and he can turn around and sell the properties for a better price.
"The time is now and I feel confident that this is a time of tremendous opportunity," says Davies. "It is a distressed environment and there will be foreclosure opportunities. Those active in the early 1990's, including myself, did very well because there was a lot of distress. There is a lot of money on the sidelines waiting to jump in and do deals and I want to do as many deals as possible."
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