LOS ANGELES—The hotel market in the western region of the US is seeing really strong revPAR growth, driven by strong occupancy gains and ADR growth. This growth is creating great opportunities for investors, not only in top-tier markets but in secondary markets as well, according to Phillip Nahas, managing partner at Oak Coast Properties, which recently acquired the DoubleTree by Hilton San Diego Hotel Circle for $49 million, with plans to invest an additional $3 million into the property. To find out more about the hotel market in the western region and how these trends are affecting the investor's investment strategy, we sat down with Nahas for an exclusive interview. Here is what he says about the hotel market.

GlobeSt.com: Give me a snapshot of the hotel market in the Western region of the US.

Phillip Nahas: What we are seeing in the hospitality sector is really on track with what we have bee seeing since 2011. We have seen really steady and healthy revPAR growth being fueled by occupancy and ADR. Since 2011, we have really seen some solid growth. Rather than be in a recovery phase, I would say that we are in an expansion phase within hospitality. We have business travel and tourism picking up, and then on the investment side, we are seeing significant amounts of capital coming from domestic as well as overseas investors. So, I think we are in a really strong position right now to continue the growth, as well as a really good time to invest.

GlobeSt.com: What are some of the drivers of this growth?

Nahas: In terms of revPAR, we are seeing higher occupancy. If you look at the San Diego deal that we just purchased, the property was doing about 77% to 80% occupancy in 2009 and 2010. Now we are seeing 86% occupancy. We are also seeing pretty solid ADR growth. Back in 2010, ADR on the San Diego property was at $108 and now we are on a trailing 12-month at $130. A lift in occupancy and ADR growth are combining to produce solid revPAR growth year over year. We are seeing a pick up in the economy; we are seeing more business travel and a lot more tourism. When buying a property, we really look at the market and the track record, going all of the way back to 2006, to determine drivers of the market and how we see the market rebounding.

GlobeSt.com: What are some of the markets in the Western region that you have identified as strong growth markets?

Nahas: We have looked at a few deals in Portland, which has an incredible hospitality market. There have been a lot of rooms added to that market, and the city in general has seen a lot of net migration and a lot of growth. They are doing some really interesting creative projects up there. Downtown L.A. is another great hospitality market. In that market, we are seeing a lot of adaptive reuse, historic buildings being converted into really hip and cool hotels. That is also associated with the boom of multifamily and condos in downtown. Orange County is a solid market, but we have been priced out of that market. We are looking at a lot of secondary markets where we see a lot of opportunities, but there are still good, strong market fundamentals and drivers behind the asset.  

GlobeSt.com: As an investor, what property characteristics are you looking in an investment opportunity?

Nahas: The core of our business is buying cash-flow producing assets where value can be added through a capital improvement plan, both interior and exterior, market growth as well as operations. We are largely focused on core-plus deals. We are very opportunistic, and we look at all opportunities that follow that investment criterion. We have looked at deals all over the country. Geographically, we don't have a specific area that we focus on, but we do look for value enhancement in all of our properties. [The capital investment] really depends on the property. Typically, we are investing anywhere from 5% to 10% of the total project cost. Our improvement plans typically include adding in larger televisions, replacing tub showers with standing showers, getting rid of clunky desks and putting more of a clean look. We are redoing the restaurants and lounges, the pool areas and redoing the meeting rooms. That is all part of improving the guest experience, and for us, it is all about improving the guest experience.

GlobeSt.com: You mentioned the presence of overseas investors earlier. Are you having an issue with this type of investor driving up prices?

Nahas: It hasn't been an issue for us, because typically we are buying core-plus, value-add investments. A lot of what we are seeing from the foreign capital is more of the secure investment and a safety vehicle. A lot of times, that requires what we see as a lower yield, but may be a higher yield when you are placing capital internationally. We are going in and putting a lot of capital into these projects, so I haven't seen a lot of foreign capital, but I know that it is out there, especially for the more stabilized assets.

GlobeSt.com: What do you see a happening the hotel market in the next 12 months?

Nahas: I think we are going to see a lot more ground-up development. As we see continued investment in existing assets, I think you are going to see a lot of these assets get priced up to a point where development is going to start making a lot more sense. Over the last four to five years in all asset classes, we have seen the ability to buy at or below replacement cost, and as these assets are continuing the increase in value, we are starting to see more ground-up development.