Kimpton Raises $200MM in Equity For More Hotels

Hotel Palomar in San Francisco

By Jon Peterson

Kimpton Hotel & Restaurant Group LLC has raised $203 million in equity for its latest hotel investment fund and has plans to acquire properties valued in excess of $500 million for its KHP Fund III.

Hotel Palomar Kimpton San Francisco The Registry real estateThe San Francisco-based hotelier plans to buy at least two and perhaps three San Francisco hotels among purchases nationally but will eschew the East Bay, Peninsula and Silicon Valley.

“We feel very good about being able to raise the amount of equity that we did given that it’s a very difficult money-raising environment today,” said Mike Depatie, Kimpton chief executive. “We were able to go over our $200 million goal by a little bit.”

Kimpton has raised $684 million of equity for its four hotel investment funds since 1997.

Fund III will have a national investment strategy, but the West Coast will be one of its targeted regions.

“We like the market dynamics for hotels in San Francisco. It’s a hard market to find properties to invest in, and it’s hard for new development to make economic sense and to get approvals to build new,”Depatie said. “These factors are some of the reasons why so many capital sources including REITs have put San Francisco at or near the top of the list” for acquisitions.

The company’s San Francisco properties saw a 13 percent growth in their revenue per available room last year, Depatie said. “We are thinking that something similar to this will happen in 2013.”

The investment fund is made up of 90 percent institutional investors and 10 percent high net-worth individuals. One of the investors in the commingled fund with a $20 million commitment was the University of Michigan Endowment. Kimpton put an unspecified amount in the fund as a co-investment.

Kimpton does have the capability of having as much as 75 percent of debt placed on the fund. “I would guess that the leverage will be around 60 percent, so this means a total capitalization of more than $500 million,” said Depatie.

Kimpton looks to invest in four-star boutique hotels that have a chef-driven restaurant. The investment company looks at four kinds of deals for the fund: new development; redevelopment of non-hotel properties such as office buildings, warehouses or department stores; existing hotels that already fit the Kimpton model; and underused hotels that can be repositioned.

There is one property in fund III at this time, The Mulberry Inn with 145 rooms in downtown Savanna, Ga.

Kimpton has a three-year investment period for fund III. The company is looking to achieve a leveraged internal rate of return in the mid-teens. It expects most of its transactions to be in the range of $50 million with an average property size of 185 rooms, investing roughly $300,000 a room.

Kimpton typically has a five- to seven-year holding period. The company controls a portfolio that totals 58 properties with 10,864 rooms. It itself owns about 20 percent of the portfolio and manages the rest of the properties for third-party owners. These assets are located in 24 North America cities. According to its Web site, these include one property in Cupertino and nine in San Francisco.

Photo courtesy of Kimpton

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