Hi everyone, I am currently an analyst at an investment consulting firm and just received an offer at a hotel management firm as an acquisitions analyst. I am viewing this as an unorthodox entry into private equity/private real estate. I would be underwriting prospective deals from the ground up and also be completing on-site due diligence. It is definitely a niche area, being hotels, but it would help me develop a skill set that I will never develop in consulting, and one that is necessary for a PE/RE candidate. I am trying to decide whether to take the job or stay at my current firm. What do you guys think?
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Is your current firm real estate related? If so, it might be worth staying to keep your exposure to different asset types and markets (assuming that is your current exposure).
My view is that hotels, student housing, and multifamily are all similar (for the most part), so you might have better exit opps than you think...
Good lord, you must be an office guy. The hotel business is absolutely its own beast. I don't disagree with you re: "exit opps" though.
If your goal is to work for a private equity shop, there are plenty of shops that invest in hotels, so that experience would be relevant. Sounds like a potentially cool gig. You should dig into the group's pipeline (how active have they been, what are they working on) and what types of hotels they own/operate.
Thanks, Slothrop. To be clear, I am at an investment consulting firm that acts fully as an intermediary. We do not directly invest our clients money. That said, my excel/valuation skills are limited and I am in no position here to enhance them through direct experience.
After talking with many people in the industry, I am hearing that although a totally different animal, I will develop a transferable skill set even it is solely focused on hotels. The firm is growing rapidly and owns/operates all different types of hotels in a portfolio of approximately 100. The interviewers emphasized that there would be the opportunity to work on a variety of unique hotels. I have a few more days to mull it over, but I think I am going to take the job.
I think you're making the right choice. If you want to discuss anything specific, feel free to PM.
I was referring to the basic underwriting principles. How are hotels different? Isn't it merely plugging a vacancy? (I am genuinely curious, never looked at a hotel deal before)
There's no vacancy its actually the opposite we underwrite based on occupancy rate. When you underwrite a hospitality asset you get the occupancy rate by summing all the rooms sold for the year and divide it by the number of total rooms available. (ex. 100 room hotel - 2016 total number of rooms available 100*365 days = 36,500 available rooms. Say for the year you sold 25,550 for the year you get the occupancy rate of 70% [25,500/36,500]).
Then to get a better understanding of the performance of a hotel you would multiply the occupancy * average daily rate (ADR) and get the RevPAR (revenue per available room). You can try to create your own assumptions based on the market or other hotels. Different franchises perform better than others. It also gets a little more confusing when you have a restaurant ran by the hotel itself.
To keep it simple most of the time most REITs or large shops underwrite based on the CAP rates or yields.
I can send you a valuation technique PDF if you PM me.
Bump, I'd also like to know more about working for a hotel investment group.
Hotels are definitely a niche of PE real estate, just because they fall more into operating like a business rather than most traditional real estate. I think hotels are the coolest asset type just because of how dynamic they are, and the re-positioning that you can do with hotels.
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