When Encore Hospitality bought the Hilton College Station (TX) last month, it brought together the commercial real estate firm with one of the top hotel management companies, Sage Hospitality. Sage had been managing the property for the previous owner, while Encore was in the process of looking for an operating partner to help fuel future growth.

What resulted was a joint venture agreement with Sage taking over management of Encore’s five other hotels, and the duo will work together to acquire and manage premium branded hotel assets.

“We are currently seeing tremendous opportunity to purchase hotel assets well below replacement cost in markets with strong fundamentals for economic recovery,” said Dr. Bharat Sangani, chairman of Encore Enterprises, in a release. “Bringing Sage Hospitality on board at this inflection point is a strong and strategic move as we seek to drive performance at every one of our hotels.”

Dallas-based Encore Hospitality, a division of Encore Enterprises, currently has six hotels in its portfolio, but it had purchased more than $400 million of hotels (40 in 13 states) since its founding in 1999. It sold the majority of those in 2007, just before the bubble burst, and now has a $150 million fund ready for a reinvestment into the segment.

Denver-based Sage Hospitality now has 63 hotels in its portfolio, with equity in about half of those. President and CEO Walter Isenberg discussed the joint venture, acquisition strategies and several other issues currently affecting the lodging industry.

Will you have an ownership stake in the future acquisitions with Encore or is your role strictly as an operating partner?
We’re going to be co-investing going forward. We’ll both be working on identifying opportunities and really working together in the acquisition process.

What segments and areas of focus will you have?
We’re looking for full service, really premium branded and select service brands. There are no geographic restrictions other than the continental U.S. And size wise, probably no less than 150 rooms, but we’re looking at everything … Probably 150 rooms to 700 rooms.

Are those segments where you see the most opportunity?
I think, but first of all we’re going to continue to focus on what we do and do well. But I think there are certainly going to be some tremendous opportunities in the sector.

What type of hold period do you anticipate with acquisitions coming from this joint venture?
It will depend on the assets. Our history is we’ve had assets we’ve owned for longer term, and some for three to five years. It just depends on the assets we’re looking at.

Do you think transaction activity is going to pick up soon?
I think we’re going to see more and those opportunities will continue to grow. The capital markets have improved and that certainly helps on the acquisition opportunities. And there are going to be more sellers out there, either natural or forced.

Are lenders getting more aggressive with owners in distress?
I think next year we’ll see a lot more of that.

How is your current portfolio doing?
We are seeing improved results. We’ve had positive year over year growth every month since March of this year.

Is it all through occupancy, or has rate improved?
It depends on the market. We’re seeing a nice mix, but primarily occupancy growth. We’re seeing some markets with rate opportunity.

What was your take away from last month’s Lodging Conference in Phoenix?
People were generally cautiously optimistic. I do think there is concern over the potential for job growth. The general consensus is the short term—the next year or year and a half—is going to be choppy.

How do you approach the challenge of growing rate?
It’s difficult to say the least. And as demand improves, we’ll have the opportunity. I think one of the real challenges is we’re going to be faced with increasing pressure on costs, whether it be from healthcare or the tax environment we’re in, and the other side is all our associates in the industry have been asked to do more with less and that just can’t go on forever. We’ve got this combination of challenges in front of us: Can we achieve revenue increases on the rate side and how do we manage the pressure on increasing costs?

What is the impact of the new healthcare law?
We’re obviously studying all the regulations and we’ve been aggressively managing our healthcare for many years and have managed to keep costs relatively flat in an inflating environment, but we’re anticipating a 15-percent bump next year in those costs. It’s going to be a real challenge and not just for us, but all businesses.

How do you handle taking over a distressed property?
We have a dedicated transition group. A significant number of our corporate office focuses on transitions and we tap talent from around the company. We go in with a significant team and spend a lot of time there. Really the biggest challenge in a lot of these situations, particularly distressed ones, is in aggressively changing the culture that exists. And then to introduce the Sage culture, which will as we’ve seen drive performance over time. But it takes time and a lot of resources. We will have people on the ground during the transition in the short term, but they’ll be in there for 90 to as long 180 days. We’ve found that to be very effective. It’s difficult to just go in and spend a week or two transitioning all the things you need to do and then leave and expect the culture of the business to change. We’ve found it effective to leave several people on the ground and it accelerates the process and performance.