September 11, 2023 | 8:17 AM

 

Within its first year of operations, Pendant Capital has found success in bringing new investors to the hospitality space while providing sellers a chance to exit. 

Launched in January, Pendant Capital is the creation of Les Bentley, managing partner, and David Capps, president and CEO. Bentley was one of the founders of Aimbridge Hospitality, now the world’s largest third-party hotel management company. Capps worked with Bentley at Aimbridge for several years after working at Merrill Lynch Capital in hotel finance.

 

In an email interview, Bentley said he and Capps have had several conversations over the years with investors who wanted to get into the hospitality segment. Creating Pendant Capital was the founders' way to make it happen.

Bentley said their combined expertise for raising capital and leveraging operations has proven to be a powerful formula. The company already has a robust pipeline.

“Our experience has been that the markets never fully stop, even when there is a broader sense of financial uncertainty, and we continue to strengthen our relationships to be best-positioned to close deals,” he said.

Creating Pendant

Bentley brings his years of experience in operations and the many owner relationships he has forged over time, Capps said in an interview, adding that he brings his ability to analyze deals and look for risks given his banking background. After Bentley retired from Aimbridge, he created his family office, Bentley Legacy Holdings, in 2013, and the two of them had been looking at ways they could work together on future projects, such as Bentley Legacy acquiring hotels to be operated by Aimbridge.

When the pandemic hit, the situation changed and they saw potential to do something more, Capps said.

“We think there has been, and there's going to be, more opportunities to acquire hospitality real estate but have that more opportunistic approach through operational oversight,” he said.

Pendant is a new venture that Capps and Bentley Legacy own, Capps said. It’s an investment vehicle for the family office going forward. There are some legacy assets held by Bentley Legacy, but in the future, more hotels will be on the Pendant side.

The investors who have invested through Pendant on its first handful of deals are new entrants to the hospitality space, Capps said. They’re not institutional investors, so they’re looking for someone to create wealth for them with expertise in the space.

Capps said he and Bentley worked together to figure out the right time to launch the company. Naturally, when they did, interest rates went up 300 basis points, he said.

On the other hand, it is the right time because the past two deals Pendant completed involved two hotel owners who were looking for an exit, Capps said.

“We’re working with owners,” he said. “We’re providing a solution for them, and that’s an exit. Maybe there’s a delta in the bid and ask, but there’s some structure that we could offer in order to entice them to do a deal.”

Making Deals

All of Pendant’s recent acquisitions have been direct deals, Capps said. The team is talking directly with the owners as going through brokers means paying a higher price. In every case, the seller is an owner/operator.

As an owner with an operational focus, Pendant sees ways to improve margins right away through better positioning with capital-expenditure projects, rebranding and/or more-focused revenue management, he said.

Pendant’s most recent deals involved some degree of seller financing, Capps said. The next two deals underway have the same level of seller financing or assumable debt.

The seller financing has been successful so far because the sellers have felt comfortable with the operational background of Pendant’s leadership, he said.

“If the seller is going to hold some paper on a deal, they want to know that the likelihood of them getting paid back is there,” he said. “They trust that the operational expertise with what we bring in our pedigree is there.”

The sellers in Pendant’s previous two deals built and owned their hotels for more than 10 years, Capps said. They went through the pandemic and all the unknowns that accompanied it, and they came to the realization that this was the time to think about an exit, something many other hotel owners are considering as well.

“I wouldn’t call them distressed assets,” he said. “They were maybe distressed owners in the sense that they’d been through a lot, and it was time to get out."

Portfolio Strategy

Every deal will have some aspect of value creation, Capps said. That could come through renovations, different branding or name changes for independent properties. Bentley Legacy Holdings has to ability to manage design and construction projects.

With its recently acquired Old Santa Fe Inn property, the company plans to add rooms to the hotel, he said. Its Senza Hotel in Napa, California, will get an expanded lobby to create a wine bar and possibly add more rooms.

“Every deal we do is going to have some level of CapEx improvement,” he said.

Pendant focuses on acquiring properties it can hold for 10 years, Capps said. While it may only hold some for five years and hold others for 12, the strategy is to have long-term holds rather than buying and flipping the hotels.

During the previous cycle, many investors came in to try to time the cycle, and that’s not something Pendant’s team is interested in, he said.

“We’re aggregating a portfolio that we feel creates wealth for our ownership long term,” he said.

That’s why it’s targeting markets such as Napa, California; Santa Fe, New Mexico; Sedona, Arizona; and Naples, Florida, he said. Those are markets where it’s more difficult to develop and the fundamentals are strong.

The portfolio is currently a mixed bag of hotel types, and that’s a product of where the opportunities were, Capps said. It has some focused-service and extended-stay hotels along with independent boutique hotels.

“A lot of the opportunities are going to come in different shapes and forms, and a lot of it starts with just having a motivated seller,” he said.

As the company looks to grow the portfolio, it will be opportunistic, he said. One of the deals its working on now is a resort. While the asset class may be a little played out, this one has unique positioning in a market that missed some of the big run-up but still saw some benefit.

In terms of operations, Pendant will continue to work with Aimbridge to manage its branded properties while having Bentley Legacy manage its independent hotels.