October 13, 2009 -- Despite a credit crunch and a slowdown in travel, Raleigh-based Concord Hospitality Enterprises has stuck by its pledge to expand its portfolio to at least 100 hotels by 2012.

To help fuel that growth, the company, which provides management services for 57 hotels throughout the United States and Canada, is forming a $300 million private equity fund to buy distressed hotels and debt.

The fund is expected to close during the first quarter of next year. Mark Laport, Concord's founder and chief executive, said it will show distressed sellers that the company is able to close on properties that come on the market in the coming years.

"We thought it vital that we already have the fund in place so that we can make much more noise with those who need to sell," Laport said.

Concord's fund will target upscale hotels like Hilton Garden Inn, Courtyard by Marriott, Residence Inn by Marriott and Starwood brands such as Sheraton and Westin. Laport said the fund would also go after properties that it could convert to those brands.

The hotel industry has been hit hard by a one-two punch of frozen credit markets and a severe drop in travel. Laport said lodging industry profits are off 30 percent to 40 percent from where they were just two years ago.

With hotel values falling, many owners with debt coming due are finding that lenders are unwilling to extend the loan or offer a new loan without additional cash or equity.

Concord, which sold 20 hotels at the top of the market in 2007 for $440 million, has continued to move forward with projects despite the downturn. Last Christmas, the company opened the $55 million Renaissance Raleigh Hotel at North Hills. Concord has four hotels under construction.

Doug Henkel, an executive vice president with CB Richard Ellis' hotel brokerage practice, said Concord's timing is good. He said other hotel developers have created such funds, and several new real estate investment trusts are being created to target similar assets and debt.

"Everybody's trying to position themselves to be in the right place to take advantage of what might come," Henkel said. "The question is how many and at what price."

Laport said he expects a steady stream of failed hotels to come on the market over the next three years, but not the avalanche that some are predicting.

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