HVS Brokerage & Advisory, as the sole and exclusive advisory firm to ownership, presents the opportunity to acquire the 51-key Quality Suites South Austin, an interior-corridor, limited-service hotel in the highly sought-after Austin market. A more “hands-on” owner/operator will have the opportunity to acquire a hotel asset within the high barriers-to-entry market of Austin, with upside to restructure the hotel’s operations by reducing expenses and improving NOI flow-through.
Ideal Opportunity for an Experienced Owner/Operator
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The 51-key count is considered an ideal size for an experienced owner/operator.
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The property contains two large suites that a new owner/operator could divide to create two additional guestrooms (increasing the key count to 53) or convert to a manager/owner’s apartment.
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Based on the past two years of financial statements, the hotel registered an average gross operating profit (GOP) of 33.0%. Based on a selection of operating statements from similarly aged hotels affiliated with Choice, the hotel should achieve a stabilized GOP margin between 45.0% and 50.0%.
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The hotel is operated institutionally with a full staff in place. Great upside exists for a more “hands-on” operator to restructure the hotel’s operations to maximize RevPAR penetration and NOI flow-through.
Strong-Performing Asset and Market
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The hotel’s trailing-twelve-month (TTM) rooms revenue equated to $1,500,000 (rounded) as of July 2023, reflecting the hotel’s best performance in the past five years.
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Compared to its competitive set, the hotel has performed strongly and has established its market share. Per STR’s June 2023 monthly data, the hotel ranked first out of seven competitors in terms of occupancy, with a penetration index of 115.2%, thus resulting in a RevPAR penetration index of 116.8%.
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The greater Austin market realized 4.8% growth in room-night demand during the TTM period ending in June 2023, and this upward trend is anticipated to continue in the coming years given the local economic boom.
Well-Maintained Physical Product
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The property has been exceptionally maintained by current ownership; therefore, a minimal change-of-ownership PIP of $6,000 per key is expected.
Discount to Replacement Cost
- This opportunity presents an investor with the ability to acquire the property at a price well below replacement cost. To construct a similar limited-service asset with comparable amenities, the estimated all-in investment would be a minimum of $150,000 per key.
Choice International Franchise
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Upon completion of the change-of-ownership PIP, an investor can expect a new, long-term franchise license agreement with Choice Hotels International. The PIP report has been ordered and will be posted to the VDR upon receipt.
Management Availability
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The hotel is being offered free and clear of any management encumbrances, providing an investor with the flexibility to revamp the operational strategies of the current operator.
Highly Desirable Location within Austin
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Given Austin’s position as a strong, diversified tech market with continued interest from corporate tech users, including a new, $1-billion Apple campus; a new, $17-billion Samsung semiconductor factory; and a new, $1.1-billion Tesla factory, the market has recovered from the effects of the pandemic, with a trajectory of long-term growth expected.
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The city also hosts multiple events throughout the year that generate a significant amount of leisure demand, including the South by Southwest Conference (March), Austin City Limits Festival (October), and United States Grand Prix (October).
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The thriving presence of Tesla in Austin, with the establishment of the East Austin gigafactory and ongoing expansion of production capabilities, presents an exciting opportunity for the Austin hotel market. The increased activity and interest surrounding Tesla's operations should drive additional demand for accommodations, attracting Tesla employees, business partners, and enthusiasts to the area.
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Austin’s economy continues to expand year-over-year, driven by the growth within the technology and multimedia sectors. PwC and Urban Land Institute (ULI) ranked Austin at No. 4 among the “top 10 U.S. real estate investment markets” for 2023.
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Per the Austin Chamber of Commerce, Austin’s job growth is projected to be 47.0% (rounded) over the next ten years, higher than the 33.0% growth rate that has been projected for the United States. Jobs in Austin’s tech industries total over 161,000, representing 15.8% of all jobs, compared to 8.7% nationally.
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In May 2023, construction began on the expansion of the Barbara Jordan Terminal in Austin-Bergstrom International Airport. The $164-million project is expected to add 80,000 square feet of space, including five new gates and more dining and retail outlets. The expansion will enable the airport to accommodate the increasing levels of demand and number of passengers.
Excellent Location Among Strong Demand Generators
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The property benefits from very good visibility off the frontage road along Interstate 35, near numerous dining, retail, and entertainment options in the area, which is a positive attribute for both business and transient guests.
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It also benefits from its location in South Austin, within a ten-minute drive of major economic demand drivers, such as Downtown Austin and Austin-Bergstrom International Airport, as well as the up-and-coming St. Elmo area, south of Austin’s city center, which is undergoing revitalization efforts.
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Earlier this year, Austin City Council approved plans for a mixed-use development in South Austin, along the South Boggy Creek. Per the plans, the development will include 1,218 multifamily residential units, 210,000 square feet of office space, and 136,000 square feet of retail space; additionally, the developer will dedicate 13.5 acres of land for a city park.
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Corporate demand generators in the area include Tesla, Google, Apple, Oracle, Intel, Facebook, The University of Texas, Dell Computers Corporation, Warner Brothers, and the Internal Revenue Service (regional office).
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