Carlos Rodriguez Sr.
Coral Gables, FL—Driftwood Capital, formerly known as Driftwood Acquisitions & Development, specializes in providing access to hotel acquisition opportunities. Perhaps not surprisingly, given the havoc the coronavirus has rained upon the hospitality industry, Carlos Rodriquez Sr., chairman and CEO, has some things to say about the challenging times facing the hotel industry.
Driftwood owns and operates several hotels throughout the US. How is the Covid-19 crisis impacting your portfolio?
Driftwood Capital and its investors own 18 hotels throughout the US, and our sister company, Driftwood Hospitality Management, manages over 70 properties, so as this situation started unfolding, one of our top priorities was keeping our hotel staff safe. Simultaneously, we went into portfolio preservation mode and took a number of immediate steps to conserve cash, open a dialogue with lenders, and tap into government aid where applicable. The next few months are going to be incredibly challenging for the hospitality industry as a whole, but we've been through these kinds of Black Swan events before – we went through both 9/11 and the recession of 2008 – so we have a playbook for situations like this.
Driftwood recently announced it was scaling up its hotel development and acquisitions activities, and launching a new lending platform. How does this position you moving forward?
Yes, we just raised just over $200 million of capital from investors in two new GP investment vehicles – one targeting acquisitions and another development – and we're fundraising now for the third GP Fund of another $100 million + for mezzanine lending. In the new fund we will target loans in the $3 to $50 million range. This puts us in the fortunate position to be well capitalized right now – I'm grateful every day for our timing on that.
The upside of dislocation is opportunity, and while it's still early, we're already seeing liquidity issues impact hotel acquisition and development deals across the board. There's going to be a pruning of the development pipeline, and a lot of owners either seeking to exit their positions or in need of rescue capital to preserve the positions. We anticipate opportunities to acquire assets at a steep discount over the next 18+ months. The key is liquidity – buyers who can offer speed and certainty – and we're fortunate to have this advantage right now.
How will this change your investment strategy moving forward?
The main shift is that we'll be adjusting our return parameters significantly – we're only going to be looking at deals with outsized returns for the next 18 months. We don't mind sitting back and waiting until the right deal comes along. We may also shift our syndication strategy and seek out more institutional capital. Lastly, our strategy has primarily focused on secondary or tertiary markets, but with the current economic situation, we're going to be taking a closer look at opportunities in Tier 1 markets and Core properties. Regardless, it has to produce the outsized returns we're looking for.
What's the long-term outlook for the hotel industry? When do you anticipate a rebound?
We remain long-term believers in the hospitality industry and in investing in well-located, high-quality hotel assets. Based on prior Black Swan events and what we're hearing from other industry experts, we're projecting it to take about two and half years for the hospitality market to rebound fully – to see RevPar return to 2019 levels. Some projections are saying 18 months, but we're taking a more conservative approach.
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