Blending Prudence With Flair
The Procaccianti Group, a privately held hotel management company in Cranston, RI, tends to downplay publicity. But major hotel brands, not to mention the banking industry, know to pay attention to Procaccianti, which has just entered the New York market with the acquisition of two hotels. An investment expert and a key Procaccianti official suggest the move into Manhattan is not only a smart one, it's also an indication of things to come.
Cushman & Wakefield Sonnenblick Goldman, advisor to both sellers and Procaccianti, not Procaccianti itself, announced the Procaccianti acquisition of the 300-room Tudor Hotel at The United Nations and the 227-room Holiday Inn SoHo.
With its New York acquisitions, The Procaccianti Group is making news and, based on a recent interview with Rob Leven, its chief investment officer, it intends to make more. He is its primary spokesman, rather than The Group's top executives: James Procaccianti, president and CEO, and Betty Procaccianti, James' sister and company CFO.
“We continue to build a portfolio of diversified assets, both in major-market urban areas like New York, Chicago and Los Angeles, and we continue to fill in those spots,” says Leven, who joined Procaccianti from US Franchise Systems five years ago (he's the son of Microtel founder Mike Leven). “We also continue to purchase best-of-class hotels in a lot of the secondary cities or smaller markets as well.”
The Tudor, in midtown Manhattan, is listed on the National Register of Historic Places. Procaccianti aims to invest $8 million to $10 million in renovating it; renovation is one of The Procaccianti Group's key skill sets. The Holiday Inn Soho is in the heart of the downtown entertainment and shopping district. Other gateway cities like San Francisco and Chicago are in the Procaccianti sights.
THE PROCACCIANTI DIFFERENCE
What sets apart The Procaccianti Group from other hotel owner-operators is the range of its competencies. In addition to owning and investing in many other kinds of real estate, the company is involved in contracting, renovation, asset management — virtually all aspects of hotel operations. It owns and operates 59 hotels representing 15,564 rooms, spanning the 32-unit Ocean Rose Inn in Narragansett, RI and the 626-unit Regal Sun Resort in the Walt Disney World Resort, Lake Buena Vista, FL.
The Procaccianti Group works with major brands including Starwood, InterContinental, Hilton, Marriott and Hyatt. It also owns non-brand-affiliated properties. To The Procaccianti Group, the key criteria, in order, are the property itself, the location and the brand.
As Leven puts it, the “bones” of the contemplated acquisition are critical. He looks for a property of high basic quality, good location — and, when possible, “the brand that would position it as the best, or one of the best, full-service hotels in the marketplace.”
In some smaller markets, where there is a large supply of limited-service hotels, The Procaccianti Group aims to dominate with a “category-killer full-service” property “that's sort of the substitute for barriers to entry,” he says.
While the New York acquisitions are high-profile, Leven notes that Procaccianti also acquires properties in smaller markets like Amherst, a Buffalo suburb where it bought the 350-room Marriott Buffalo Niagara this past fall.
DIVERSITY AND COMPETENCE
The Procaccianti Group “continues to make smart investments in major markets,” says Mark Gordon, head of the U.S. hotel group for Cushman & Wakefield Sonnenblick Goldman, the New York investment firm that arranged the Tudor and Holiday Inn Soho buys.
The deal, more than the location, drives Procaccianti, Gordon suggests. Critical to that is the Procaccianti breadth. “The Procaccianti Group is a fully integrated hotel company,” he says. “They have the ability in-house to source hotel acquisitions. They manage themselves. They asset-manage.
“Where most companies do one of those, they understand the entire field so they're able to do things more efficiently and aggressively because they don't have to rely upon third parties as much as other hotel companies.”
Most Procaccianti deals have involved buying a hotel in a great location that needs to be renovated and may have the wrong flag or brand. An extensive upgrade and reflagging typically result “in a dramatic, short-term increase in cash flow” for Procaccianti, Gordon says. “That's really their model, and they're staffed appropriately to capitalize on those kinds of opportunities.”
The New York deal took its time, he suggests, because Jim Procaccianti is cautious and deliberate. In conversations over the past 10 years, Procaccianti told him he was eager to enter the New York market but it would be inefficient to do so with just one hotel. So when two hotels, in widely separated parts of Manhattan, came up for sale, Procaccianti jumped at the chance.
“As soon as we got both assignments, I called Jim and said, this is the perfect opportunity for you to buy two hotels simultaneously and have instant strong market share in New York, which is the global financial and leisure capital of the world,” Gordon says. “What's great about these two deals is they didn't compete with each other. He immediately understood the opportunity.”
And was able to seize it because of his firm's financial stability and relationships with non-CMBS (commercially backed mortgage securities-supported) banks. Says CFO Leven: “We've always maintained some very good banking relationships that allow us to be relatively unaffected by the debt markets. We're well capitalized on the equity side, and from a performance perspective at our properties, while the economy and the capital markets are a little dicey, there hasn't been a lot that's unexpected about the fundamentals.”
“Since 1964, when the company was founded, we have lived through several real estate cycles and through our experience we have created strategies to mitigate risk,” James Procaccianti said via e-mail. “These strategies have allowed us to succeed regardless of market fluctuation. We have always kept a tight control over expenses and put great emphasis on maximizing efficiencies.”
Procaccianti has been operating on the assumption of declining RevPAR growth for several years, Leven says, noting a disconnect between buyer and seller is resulting in the repricing of transactions. But that should reach a new equilibrium in the next six months, he predicts.
Meanwhile, The Procaccianti Group should prosper, Leven says. It's a hands-on company with a personal approach, and stake in, its properties. “We're not an institution that just invests capital. We invest with partners so we are owners and financial investors, but we have all of these operating companies and businesses which help facilitate our investments and our partners' investments.”
As long as The Procaccianti Group combines prudence, discipline and opportunism, it should only expand — and prosper. “This is a time where you have to manage efficiently and watch what you're doing,” Leven says. “There's a little less margin for error over the next couple of years.”
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