This Extended Stay Hotels Offering Is Targeting a 20.6% IRR

EquityMultiple has an active listing for Extended Stay Hotels for the acquisition of a 165-key extended stay hotel portfolio in Georgia. The two extended stay hotels are located in the cities of Columbus and Macon and the offering has a target internal rate of return (IRR) of 20.6%. Is this realistic? Let's dig deeper.

Offering Snapshot:

• Property Type: Hotels
• Investment Type: Equity
• Target Hold Period: 36 months
• Minimum Investment: $15,000
• Target Closing: Mid February
• Projected Returns:
  • IRR: 20.6%
  • Equity Multiple: 1.7x 
  • Net Average Cash-on-Cash: 9.6%
• Hypothetical Return on $100,000 investment:
  • Year 0: ($100,000)
  • Year 1: $7,018
  • Year 2: $10,310
  • Year 3: $149,761 (anticipated exit)

The Extended Stay Hotels Portfolio

The Extended Stay Hotels portfolio contains two properties, one located at 1721 Rollins Way, Columbus, GA 31904 (Columbus Hotel), and the other at 3980 Riverside Drive, Macon, GA 31210 (Macon Hotel). The portfolio will be purchased for $11.1 million, or approximately $67,000 per key, representing a 13% discount to recent comparable transactions and a 39% discount to replacement cost of $110,000 per key, according to the Investor Packet. The total project capitalization is $12.8 million, or roughly $78,000 per key.

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Columbus Hotel

The Columbus Hotel is a 92-key extended stay hotel that will be acquired for $6.2 million, or about $68,000 per key. The hotel has a trailing-12-month occupancy rate of 77.4% at an average daily rate (ADR) of $59.10 per night, which equates to a revenue per available room (RevPAR) of $45.74 per night, according to the STR Report in the Investor Packet.

Columbus is the 2nd largest city in the state of Georgia with a population of 202,000, and the larger Columbus-Auburn-Opelika, GA-AL Statistical Area (MSA) has a population of about 324,000. The MSA has a median household income of $54,000, reflecting the area's lower cost of living, and has an unemployment rate of 4.2%, which is in line with the national unemployment rate of 3.8%. All of this information is provided in the Investor Packet citing data from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics, and other sources.

The Columbus midscale hotel market has an average occupancy of 65.2%, representing an increase of 3.4% year-over-year. The ADR for midscale chains is $99, representing an increase of 9.1% year-over-year, and RevPAR is $64, representing an increase of 12.8% year-over-year. This information is found in the Investor Packet citing data from multiple sources.

Macon Hotel

The Macon Hotel is a 73-key extended stay hotel that will be acquired for $4.9 million, or about $67,000 per key. The hotel has a trailing-12-month occupancy rate of 85.1% at an ADR of $55.90 per night, which equates to a RevPAR of $47.58 per night, according to the STR Report in the Investor Packet.

Macon is located approximately one hour south of Atlanta and is the 4th largest city in the state of Georgia with a population of 157,000, and the larger Macon-Bibb County Metropolitan Statistical Area (MSA) has a population of about 236,000. The MSA has a median household income of about $53,000, which reflects the area's lower cost of living, and has an unemployment rate of 4.3%, which is in line with the national unemployment rate of 3.8%. All of this information is provided in the Investor Packet citing data from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics, and other sources.

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The Macon midscale hotel market has an average occupancy of 55%, representing an increase of 2.2% year-over-year. The ADR for midscale chains is $97, representing an increase of 3.5% year-over-year, and RevPAR is $53, representing an increase of 5.8% year-over-year. This information is found in the Investor Packet citing data from multiple sources.

Is a 20.6% IRR Realistic?

The Extended Stay Hotels offering contains two quality properties in great markets with strong financial profiles, making the 20.6% target IRR realistic, in my opinion. Click here to learn more about the offering.

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Image Credit: EquityMultiple