Thayer Lodging lines up $280 million fund to buy hotels

Private-equity firm Thayer Lodging Group has raised a $280 million fund to buy hotels, a sign that some investors are willing to take more risks as the recession abates.

The Annapolis-based company, founded in 1991 by financiers Frederic V. Malek and Leland C. Pillsbury, hopes to use the money as a basis to borrow another $420 million, giving it resources to buy up to 15 hotel properties over the next three years.

"The timing for acquisitions could not be better than it is right now," said Malek, chairman of the company. "The industry has been punished by the worst decline in revenues and profits since statistics began being compiled in the hotel industry. There is no significant recovery expected until 2011, so this gives us time to acquire, renovate, reposition and catch the next upswing as it gains momentum."

The money is in Thayer Hotel Investors V, and came from pensions, wealthy investors, financial firms and a foreign sovereign wealth fund, Malek said. He declined to identify the investors by name.

Malek said the first $230 million in commitments, most of which came from investors he has worked with before, was not difficult.

"The last $50 million," however, "was really hard," he said. "Investors were somewhat cautious about real estate because they had been burned by the sector, and there is less money to invest overall."

Private-equity observers said Thayer could have a tough time raising the $420 million from lenders. And once it has the money, the firm is likely to face strong competition for the best hotel properties.

"It's still difficult to get debt for anything, and in particular on real estate because you have to ask banks to take real estate onto their balance sheet," said Dan Primack, editor-at-large for peHub.com, a blog covering the private-equity industry. For 18 years, Thayer Lodging has been buying neglected hotels, upgrading rooms, improving finishes and adding amenities such as executive meeting centers, and then reselling the properties. The company has bought 35 hotels and resorts worth $1.8 billion under Marriott, Hilton, Hyatt and Wyndham brands. The private-equity fund has sold 20 of the properties, including the Washington Marriott Wardman Park, distributing profits to investors after taking its fees. Its remaining 15 hotels have a total of 3,300 guest rooms.

Thayer's funds combined have realized a 29 percent return before fees, Malek said.