Trinity Investments has had an eventful year.
The Honolulu, Hawaii-based luxury and lifestyle hotel investor and operator has been a leading figure in the US lodging space this year, locking down market moving financings and acquisitions in a turbulent period for the country’s financial sector. It has also faced down potential devastation at home in Hawaii, brought about by multiple hurricanes and deadly wildfires.
Sean Hehir, the CEO of the 27-year-old firm, has stayed the course, routinely voicing his confidence in the strength of the US consumer and the country’s hotel sector, which has performed well this year as much of the rest of the commercial real estate and finance sectors have struggled to find solid ground.
Trinity, which teams up with prominent private equity firms as an operating partner, shook the hotel market earlier this year when it announced its acquisition of The Diplomat Beach Resort in Hollywood, Fla. for $835 million, joining with Credit Suisse Asset Management on the transaction — the largest of its kind since the onset of COVID-19 more than three years ago. The firm has also secured a $515 million financing on The Westin Maui Resort and Spa; and more recently, it refinanced its Grand Lakes Orlando Resort with $750 million in debt.
The company, sporting about $5 billion in hospitality assets under management, has shored up some of its premier luxury and lifestyle assets and moved strategically to acquire others in a time of considerable uncertainty in the US, and now, it has its sights set on Europe.
Trinity announced on Oct. 31 that it is opening an office in London, led by Managing Partner Ryan Donn, to get a foothold in the continent. It is currently identifying investment opportunities, with a focus on destination markets in the UK, Ireland, Portugal, Spain and Italy, among others. Hehir said his group will also look to make strategic preferred equity investments to sponsors operating in the region; subordinate debt and preferred equity are areas in which Trinity engages in the US along with its work at the property-level.
Hospitality Investor spoke to Hehir about the move to Europe, the health of the bloc as it relates to its luxury and lifestyle lodging sectors, and the challenges they may face as they establish themselves.
Hospitality Investor: How long has this campaign been in the works, and why is now the right time to make the move into hotel investment in Europe?
Sean Hehir: Europe’s going through some of the same changes and things that we're seeing in the US. People are much more focused on experiences. I joke that people got tired of shopping online during COVID, so they’re shopping for experiences. We’re also seeing people travel. We saw a little bit of softness in the US this summer because more people were going to Europe. Europe was inaccessible for many people over the last couple of years because of COVID, but people went back in droves.
We’ve all been involved in Europe — the partnership within Trinity — at various stages of our careers. To each of us, it’s always been a market we wanted to get back into, but we wanted to get the model right in the US first. It really is working well and it works well for our joint venture partners. It was on our horizon over the last few years to find the right entry point to get back into Europe and also it was at the request of some of our JV partners, who are investing in Europe and they wanted to partner with us to build a team there. We’re working on our first few acquisitions. Unfortunately, I cannot disclose what they are or where they are, but we’re working with JV partners that we’ve partnered with in the US.
Hospitality Investor: How would you compare the complexion of the European luxury and lifestyle hotel market to that of the US?
Sean Hehir: We see the same fundamentals in Europe [as in the US], where there’s high barriers to entry for new supply, and especially with a high inflationary environment with high interest rates, people aren't really building. We see opportunities where we can bring our asset management and project management expertise to these assets to turn them around, not just from an operational and asset management perspective but also in terms of renovation and repositioning. It’s very exciting over there.
We just need to be cognizant. In the US you can get on a plane and fly an hour and you’re dealing with the same tax regime, whereas in Europe it’s different. We have experience dealing with different tax jurisdictions, so you have to be aware of that; there are different labour laws in different markets and different ownership structures; in Europe, there are more leases, which we don’t see as much of in the US.
Hospitality Investor: How much, if at all, will the strategy you’ve deployed in the US differ from how you plan to operate in Europe?
Sean Hehir: In the US, we’re known for bigger box assets — 400 rooms and larger — so that lens will be smaller, but it’s just understanding what the consumer wants and needs. One thing that’s still prevalent in the US is people are working from home Mondays and or Fridays, and that’s not quite the case in Europe; a lot of people are back in the office. When we renovate hotel rooms in the US, we have to make sure there’s sufficient work space because every weekend could be a three-day weekend. We’ll have to evaluate if that’s the case in Europe, but for the most part, it’s similar in that: How do you revitalize these assets? How do you make hotel restaurants and the gyms interesting? How do you make the meeting space appeal to meeting planners? On the other side of it is distribution: Where’s the business coming from? Is it the right mix of group, leisure and corporate? Are we too heavy on the online travel agents? Are there better distribution channels?
We’re opportunistic investors — value-add investors — so if opportunities arise, we’ll evaluate them on a case-by-case basis, but we have to be careful about not trying to be all things to all people (or to all joint venture partners). It’s worked for us in the US, having a targeted approach and a thesis as to why, and we’re developing that in Europe as well.
Our relationships with the brands — Hilton, Marriott and Hyatt — are very strong in the US, and they’ve welcomed us with open arms in Europe. We plan to continue with our relationships on the private equity side but also on the branded side.
Hospitality Investor: How challenging do you expect your EU expansion to be from a financing perspective?
Sean Hehir: Financing is challenging everywhere right now. There’s a lot less liquidity in the market, in the US, in Europe and elsewhere, so you lean on relationships. Fortunately for us, the relationships we have in the US do translate to Europe as well, and for the acquisitions we’re looking at, we were able to source acquisition financing. It is challenging, more generally, but a close friend of mine who runs a debt fund here in the US talks about the three “B’s”: Basis, borrower and business plan. If you’re buying at the right basis and you have the right sponsorship and business plan, we believe that you can find financing.
That being said, part of our strategy in the US is to provide preferred equity and mezzanine debt financing and investments like that to other sponsors who are having a hard time finding financing and refinancing; we may see some of those opportunities in Europe as well, to invest on the preferred equity side.
Hospitality Investor: There’s been some concern for EU hoteliers over the last year about staffing and other operational issues. What are some of the bigger challenges you and your group expect to face, from an operating perspective?
Sean Hehir: In the UK, with Brexit, staffing is challenging because you can’t draw from the rest of the continent, like you could before; but during COVID, a lot of people working in hotels — both in Europe and the US — found employment elsewhere and then came back. I don’t see unique challenges in Europe, as we face some of the same challenges in the US.