In 2018, the Principals of Dominion Hospitality Group, LLC (DHG) identified and purchased the 80-room Holiday Inn Express built in 2005 at a purchase price of $8,650,000 ($108,125/key, or 17-28% below replacement cost of $130,000-150,000/key). With an all-in acquisition cost of $9,500,000 based on a projected Net Operating Income of $962,320 in 2018, this represents a 10% capitalization rate on the total transaction cost. The price represents a 3.95 revenue multiplier on cost, and a 3.53 revenue multiplier on the actual purchase price.
It’s important to note that of InterContinental Hotel Group’s 5000 hotels across 12 brands, Holiday Inn Express is their fastest-growing brand. The current owners completed the full “Blue” renovation required by InterContinental in 2016 and replaced the roof in 2015. Due to the extensive nature of the renovation, we’ve estimated our PIP is $400,000 and have underwritten it at 125% (or, $500,000). In 2016, during the full renovation, many of the rooms were offline and the revenues dropped.
Post-renovation, we’re pleased to see the revenue and all other indicators (e.g., REVPAR and ADR) are improving to a level comparable or above the competitive set. Monthly occupancy variance ranges from a low of 55% to 88% on a monthly basis in the last calendar year, offering Break Even Point stability from a cash flow perspective.
The hotel runs at a 79-80% occupancy despite having no Interstate billboard exposure, which is something our ownership group has plans to address.
This very well-maintained hotel sits just off of I-85 and Hwy 321, which is an extremely high-traffic interchange just 16.5 miles south of the Charlotte Douglas International Airport. It’s also a major growth artery between Charlotte and Atlanta.
The demand drivers for this hotel are both the business and tourist traveler, as well as numerous firms such as Bank of America, Lowe’s Headquarters, NUCOR, Duke Energy, Sonic Automative, SPX Corporation, and many others. Charlotte itself is home to 14 Fortune 1,000 companies.
Additionally, the hotel is in close proximity to a number of educational institutions, including Johnston and Wales University, University of North Carolina, Davidson, and Wingate University.
Since acquiring this property, the DHG management team has exceeded year-over-year revenues and is now implementing the remaining items needed to complete the full “Blue” PIP mandated by IHG.