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Thayer Lodging Group Has Fifth Investment Fund Ready to Acquire
 Under-valued Hotels in the Top Twenty U.S. Markets

By Elisha Sauers, The Capital, Annapolis, Md.McClatchy-Tribune Regional News

December 22, 2009 --An Annapolis-based hotel investment company has the ambition to collect 15 more properties in the next three years.

Thayer Lodging Group, a privately held firm that began in 1991 and already has 15 hotels in its portfolio, owns the Annapolis Marriott Waterfront Hotel on Compromise Street. But the company has assets nationwide, with about $1.8 billion worth of investments in hotels and resorts on its books.

Earlier this month, company representatives announced raising about $280 million in equity commitments from investors for their expansion plans. Thayer executives said they intend to use the money to seek additional loans, as they anticipate the total cost of the acquisitions to overrun $600 million.

In the current economic climate, experts have said finding the capital for such projects is no easy feat. Mary Jo McCulloch, president of the Maryland Hotel and Lodging Association, said loans are hard to come by these days, but the industry is just now starting to see some signs of "money loosening up."

And the economic downturn has hampered families' plans to travel, which has, in turn, made putting heads in beds difficult for hoteliers.

"Obviously the hotel industry is very dependent on the economy," McCulloch said. "If people don't have jobs and don't have the money to put towards food and housing and clothes, they're not going to travel."

Statewide hotel room occupancy was down 4.6 percent compared to one year before, according to a Smith Travel Research report released in July. And Maryland hotel owners' revenue has declined about 3 percent in the past year.

George Dabney, Thayer managing director, said though it's tough times for the hospitality industry as far as consumers go, lower demand is driving commercial real estate and operations costs down.

"In 2009 hotel revenues have reached historic lows, and that's because of the economy," Dabney said. "But what history tells us is that if you are prudent investors, that over time, when the economy recovers, you'll recover as well."

Thayer's plans come at a criticaltime for the hotel and resort business. Scott Smith, senior vice president of the PKF Consulting office in Atlanta, said many other hotel investment companies throughout the country have raised similar funds for upcoming opportunities, but few have made transactions.

That will change in a few months, he said.

"We expect for 2010, 2011 just outstanding opportunities for the hotel investor," Smith said. "As of yet, that really hasn't happened because no one really knew where the (economic) bottom was, so they were still hesitant to purchase, even at a discount, until they knew, 'Well, gosh, am I going to be sitting on this for another six to 12 months?' "

Smith said the deals on the horizon -- likely the ones Thayer is searching for -- will be older, suffering upscale properties, whose owners would sell off their lenders' notes at a discounted rate.

Though company officials have not specified which properties they are currently considering, Dabney said they are focusing almost exclusively on the "top 20 markets" -- major U.S. cities and their surrounding areas. But with the Washington, D.C.-metropolitan area ranking as a prime target, Dabney said Annapolis properties were a possibility, as well.

Though Annapolis itself is probably more in line with a secondary market for lodging, the company is also keeping a lookout for "extraordinary deals," he said. And with one hotel already here, he added, the business has established a familiarity with this business community.

Dabney said the Annapolis Marriott is similar to the type of deal the company is seeking.

"That was a huge value-add opportunity, to acquire what was pretty much a rundown Hilton that needed a little bit of renovation work and additional (market) repositioning," he said.

This is the fifth investment fund Thayer has raised since it began. The company is known for its business strategy of buying shabby hotel properties in the top two tiers of the market, then renovating and rebranding them for potential resale.

McCulloch said she hopes this opportune time for hospitality investors will draw buyers to Maryland. She feels optimistic that it will, with Base Realignment and Closure jobs bringing more travelers into the state and its markets' proximity to the nation's capital.

"We really think of this time as the investment opportunity of the generation," Dabney said.


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