Monday Q&A: It’s up from here

If you picked the industries most under stress right now, the hotel and commercial real estate businesses would likely be in the top five.

This week BizSense caught up with a guy who is in the thick of both.

Glade Knight is the chairman and CEO of Richmond-based Apple REIT Companies, a collection of real estate investment trusts that own hotels across the country. In January 2008, the firm purchased the Richmond Marriott for $53 million. This past spring the company completed a $14 million renovation of the hotel, which included the opening of a new sports bar, T. Miller’s, over the summer. (You can read about that here.)

Knight started Apple REIT in 1999 and over the past decade has raised billions from investors.

BizSense caught up with Glade to talk about how the company has fared over the past year and his outlook on the hotel industry overall.

Below is an edited transcript.

Richmond BizSense: This year Apple REIT acquired the Richmond Marriott. What attracted you to this one?

Glade Knight: I think the timing with what is happening on Broad Street is very good. I saw a resurgence of the business environment, CenterStage, the National Theater, the courthouse and library. I got a good purchase price on it, rennovated it from top to bottom and opened up the T. Miller’s Sports Bar and Grill. The hotel was running close to the bottom; now it is first or second in the market in all categories.

We have exceptional management there. If you were there some years back and went there now, I believe you would notice a dramatic difference.

RBS: Everyone has been through a lot in the last year. What have you seen in terms of performance of the Apple REITs in the past year?

GK: The past year has been down as well as it has been for everyone else. All sectors of business have felt somewhat of a decline. That being said, we feel we’ve been very fortunate in our performance. Let me back up and say, having a decline in real estate is not unusual, it has a lot of cycles to it. This happens to be one of the down cycles.

As an industy, our industry is down probably 15 percent. We have some markets that are outperforming, some that are level, and some that are coming back and showing growth. We have 203 hotels in most of the major markets and many smaller markets.

RBS: Many say commercial real estate still has a ways to go before it hits bottom. Are you worried about the outlook on commercial real estate?

GK: Commercial real estate is very broad; as far as office and retail, I think that is true. In hospitality we are probably looking at a fairly flat year.We probably have reached the bottom. We are looking ahead, and by all analysts’ predictions 2010 through 2015 looks extremely good.

RBS: How much did you grow your holdings this year?

GK: We purchased 12 hotels. We continue to grow and to buy. Probably on average we have had slower years and busier years. If you are aquiring two to three hotels a month, it is a fairly aggressive year. For the most part we pay all cash, and only purchased Marriot and Hilton products. Except for five or six hotels, they are all limited service. That particular segment seems to weather the times a lot better.

RBS: Many other national REITs have suffered this year. How have you managed to remain in such good shape?

GK: Performance. In all kinds of economic conditions you need to perform for the shareholders. We are a public non-traded company. Our track record is what we are really proud of. Our ability to do that is the selection of the right markets, the right product type.

We have a very unique structure  I don’t think anyone else employs. We have very limited to no debt, and that allows you to perform quite well through the tough times and extremely well during the boom times.

RBS: What is the biggest economic concern facing your hotel holdings?

GK: The rates. You do have pressure on occupancy, and we cater heavily to business, so there is some decline in the company. But probably the heaviest thing is to be able to keep rate integrity and be able to charge per room the highest market rate.

RBS: How long before the rate returns to what it was?

GK: It’s headed in that direction now, and we will see a leveling off and hopefully a slight increase.

RBS: How much time do you spend in hotels yourself? Are you a frequent guest?

GK: I do. Many mornings I go to the Richmond Marriot first thing, stop in, say hi. Many times as I leave, it’s the last place I stop in. I take our family in there; this Saturday I’ll have my entire family out there and we’re going up there to eat, and have our own special room and have a Mexican fiesta feast.

We enjoy it;  I can say it’s our favorite place.

Al Harris covers commercial real estate for BizSense. Please send news tips to Al@richmondbizsense.com.