Newcastle Hotels

HOTEL BUSINESS – September 7-20, 2009

Top 100 Owners & Developers:
Poised for Possibilities – New Castle ready to leverage its diversity in dash for distressed hotels. Pg. 53

By Bruce Serlin

SHELTON, CT—New Castle Hotels & Resorts’ 32-hotel portfolio of both owned and managed hotels, includes upscale, upper upscale, and select-service properties that are branded as well as independent. The portfolio was assembled opportunistically and president and COO, Gerald Chase, is a firm believer that an opportunistic approach will enable the company to continue to grow.

“We’re an ideal size to take advantage of opportunities going forward,” Chase told HOTEL BUSINESS®. “We’re not too big to be paralyzed trying to fi nd a structure that will allow us to survive until the industry rebounds. Nor are we so small that we don’t have the systems or resources to be able to grab the opportunities that present themselves.”

Opportunities for companies like New Castle will emerge, Chase argued. “We created the company out of third-party management during a distressed period. We used our resources to buy into those properties, frequently offering sliver equity. It helped build our portfolio
and we grew from there,” he recalled.

Chase expects to use the same philosophy this time around.
“We’re building relationships with good funds, trying to develop models that will make sense as acquisition candidates become available at the right price,” he said.

Chase acknowledged that values have not yet stabilized. “It’s challenging because nobody right now knows what the right price is,” he continued. “But at least we’re engaged in a process to make sure we can take full advantage of a transfer of product once it begins.”

When asked when it will indeed begin, Chase noted, “The market is already starting to get a little more active. Banks and owners are going to be stressed to the point where product can’t be kept on the books and has to be transferred. There are going to be opportunities for companies that can, number one, attain the capital and, number two, have the necessary management resources. Companies will have to make sure they can do the repositionings and turnarounds to add value to those properties. That’s where we’re focused.”

Staking its claim
New Castle owns a number of its hotels with a 100% stake, while other properties are part
of joint ventures, where the ownership stake ranges from sliver equity to 50%. “We have to pay debt, which is good discipline because it challenges us to make sure we have systems in place to produce the best return,” Chase explained. Upscale and upper upscale hotels in the
portfolio include the 150-room Sheraton in Tarrytown, NY, and the 279-room Renaissance in Syracuse, NY. The select-service portion of the portfolio includes the 90-room Courtyard by Marriott in Burlington, VT, and the 170-room Hilton Garden Inn in Norwalk, CT.

Roughly half of New Castle’s portfolio is in the Northeast U.S. with the rest mostly dispersed down the Eastern seaboard as far south as Georgia. The company has one property in the Midwest in Wisconsin as well as six in the Atlantic Ocean-bordering provinces of Canada. “If the opportunity presents itself, we can expand further west, further south or further in Canada,” Chase said.

While a company may have numerous acquisition targets to choose from, it would be smart to grab the opportunity that it’s best qualifi ed for, Chase cautioned. “We’d love to be in California and Seattle, for example, but quite candidly I don’t think we’re best suited right now because we don’t have the necessary resources to succeed there,” he said.

The portfolio also includes independent properties like the 108-room Brookwood Inn in Rochester, NY, and the 147-room Digby Pines Golf Resort & Spa in Digby, Nova Scotia. “This part of the portfolio has some historic properties as well as some boutique type properties. The boutique properties, in particular, give us a creative niche,” Chase explained.

However, the downturn has had a greater impact on the independent properties than it has had on some of New Castle’s branded products. “At the same time, however, we have the ability to create the most value in this particular niche and also to take these properties and reposition them,” Chase said.

Given the diversity of product types in the portfolio, Chase and other members of New Castle’s executive team believe the company is well positioned to reposition a property with a new flag or by installing new management. “When we acquire these properties and take out third-party management, we really establish a new strategy to add value to the assets,” Chase noted.

Looking back from the perspective of earlier industry downturns, Chase sounded confident that the company will not only survivethe present troubles, but emerge stronger. “We developed all our systems and strategies during previous downturns, which has held us in good stead through the current distressed time,” he said. “Obviously, everyone’s hurting right now and we’re not immune to that. But relative to our competition, we’re in pretty good shape. We’re not able to get the type of returns we’d like to for our partners. No one is. But we’re paying debt, making sure the properties are run properly and moving forward with our company.” HB