Hilton Dallas/Plano Granite Park

An institutional-grade investment in a 2014-constructed hotel (299 keys) acquired at what Driftwood Acquisitions Partners, LP (“DAP”) believes to be an approximate 40% discount to replacement cost (per HVS US Hotel Development Cost Survey (Feb. 2022)), strategically located within Dallas-Fort Worth’s Granite Park mixed-use development that is expected to draw on multiple demand generators. This investment opportunity boasts strong in-place cash flow with what DAP believes is attractive seller-financing. DAP seeks to add further value through operational efficiency and a guest-facing light-impact renovation.

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Target Avg. Cash-on-Cash1

17%

Target Net Equity Multiple1

1.9x

Assumed Hold Period1

5 Years (June 2023 - June 2028)

Minimum Investment

$50,000
OverviewRationaleMetricsScorecardMediaLegalFAQ

Deal Overview

DAP believes that the following charactersitics of this investment opportunity may lead to a risk mitigated, stable hotel investment opportunity:

Prime Location

  • Macro: High-growth market DFW; Plano, TX.
  • Micro: Granite Park – high barrier to entry sub-market – a mixed-use development with 2.3M SF of Class-A office and retail space.
  • Robust occupancy – Granite Park’s five original office towers are 94% leased.

Plan for Optimal Returns

Value-add brand-mandated property improvement plan: High-impact renovation to guest-facing spaces including guestrooms and meeting areas expected to translate to gains in market share. DAP has executed similar renovations in the DFW market (Hilton Dallas/Rockwall Lakefront; Hilton Dallas/Southlake Town Square).

  • Operational Efficiency: Switched from brand-managed to owner-managed, maintaining Hilton franchise license with no termination fee.
  • Additional Growth Opportunities: Due to what DAP believes is the hotel’s competitive advantage of approximately 34k SF of function space, the revenue management team has identified a potential 50% growth in banquet revenues with increased group business.
  • Cash Flow: Since DAP’s acquisition of the Hotel in June 2023, Average Daily Rate (“ADR”) for Year 1 is pacing $5 higher than DAP’s initial underwriting. Investors are projected to receive an 8.0% distribution in Year 11.

Accretive Seller Financing

  • DAP secured what it believes to be accretive Seller financing with attractive loan terms.
  • DAP’s underwriting model assumes a refinancing and upsizing of the debt as a capital event over the summer of 2026.

Institutional Quality Asset

  • Less than 10 years old.
  • Institutional grade build quality.
  • The original developer is an institutional grade master developer of Granite Park and continues to deliver Class-A office in the surrounding area, which is being absorbed. Hence, DAP anticipates continued growth in demand.

Local Infrastructure

  • Driftwood Hospitality Management (“DHM”) local presence in DFW
  • Driftwood Acquisitions Partners (“DAP”) ownership of other hotels in DFW

Property Overview

  • Address:

    5805 Granite Pkwy, Plano, TX

  • Year Built:

    2014

  • Keys:

    299

  • Brand:

    Hilton

  • Meeting Space:

    33,833 SF

  • F&B:

    Carso, Carso Market, Prairie Fire

  • Amenities:

    Outdoor Pool, Fitness Center

  • Interest:

    Fee-simple

  • Labor:

    Non-union

  • Parking Spaces:

    355

Investment Rationale

Historical In-Place Cash Flow

The Hilton Plano Granite Park has historically generated stable cash flow, providing a solid foundation to build upon the projected 9% cap rate on stabilized NOI.

Prime Location & Economic Growth

The Hotel resides within the Dallas Fort Worth Metroplex, a top-five fastest-growing economy in the U.S. per American Growth Project. A network of major highways and interstates connect the hotel, which also has excellent access to DFW International Airport. Plano is home to 67 of Forbes’ Global 2000 tech companies (Plano Economic Development) and the Hotel is expected to capitalize on robust corporate demand. DFW affords a business-friendly environment with a relatively low cost of living, and no individual- or corporate income tax at the state level, per Tax Foundation.

High Barriers to Entry

As the only hotel in Granite Park, a 90-acre mixed-use community, inclusive of the forthcoming Granite Park Six office building, along with what DAP believes are significant barriers to entry in the area, including escalating construction costs and fewer available hotel sites, the Hotel is expected to benefit from favorable supply-demand dynamics within the submarket.

Local Presence & Track Record in DFW

DHM operates multiple upper-upscale, full-service, similarly sized hotels in the DFW region, including the Hilton Dallas Southlake (247 rooms), Hilton Dallas Rockwall (232 rooms), and Sheraton Dallas Hotel by the Galleria (316 rooms), provides opportunities for labor efficiencies, cross-selling, and pricing power strategies, boosting operational strength and profitability.

Operational Efficiency & Upside

Savings in labor expenses including benefits and taxes may be achieved when a hotel converts from brand-managed to owner-managed with a franchise. One example is scheduling for seasonal fluctuations in demand. Transitioning to an owner-managed model and targeting a gross operating profit margin of 44% using our current market and brand benchmarks, we aim to drive operational efficiency enhancements.

Expected Growth in Revenues

With ~34k SF of well laid out function space, DAP believes there is a significant opportunity to increase food and beverage revenues, which are projected to grow by approximately 15% by stabilization (Year 3)1 from the trailing twelve months ending May 31, 2023. With 19 total meeting rooms, the hotel has ample event space, including two pillarless ballrooms, a wrap-around terrace and areas that feature folding glass walls to bridge indoor/outdoor functions.

Attractive Seller Financing

  • DAP secured what it believes to be accretive Seller financing with attractive loan terms.
  • DAP’s underwriting model assumes a refinancing and upsizing of the debt as a capital event over the summer of 2026.

Value-add Property Improvement Plan

A planned investment of $8.725M for guest-facing renovations over the next two years is expected to increase competitiveness and regain market share back to over 100% of the Hotel’s “fair share” of its competitive set RevPAR.

Institutional Quality

Developed by Granite Properties in 2014, the Hotel offers what DAP believes to be high build quality, structural integrity, and design efficiency.

Discount to Replacement Cost

Given escalating construction costs, the acquisition represents a significant discount of approximately 40% compared to developing a similar asset in today’s market, per HVS’ 2022 Development Survey.

Sensitivity Analysis

Downside Case1

NOI 90% index to Budget
Exit Cap Rate 7.5%
Refinance 65% LTV

Exit Year NOI

$7.1M

IRR

9.4%

Equity Multiple

1.49x

Cash-on-Cash*

7.8%

Target Case1

NOI 100% index to Budget
Exit Cap Rate 7%
Refinance 70% LTV

Exit Year NOI

$7.9M

IRR

17.1%

Equity Multiple

1.93x

Cash-on-Cash*

13.2%

Upside Case1

NOI 110% index to Budget
Exit Cap Rate 6.5%
Refinance 75% LTV

Exit Year NOI

$8.7M

IRR

22.6%

Equity Multiple

2.24x

Cash-on-Cash*

18.7%

*The average cash-on-cash return includes proceeds from an anticipated refinancing but not reversionary value at exit. 

Investment Underwriting

Base Case underwriting projects a levered IRR of 17.1% and an Equity Multiple of 1.93x. Cash distributions are projected to average 13.2% annually during the 5-year hold period commencing June 2023. DAP’s underwriting includes a $8.725M renovation to complete a change of ownership property improvement plan as part of the Hilton franchise agreement as well as a projected refinance in Year 3 and projected sale in Year 5. 

With the Hotel exceeding $5M in NOI in 2019, DAP’s 2023 budget is on par with 2019, unadjusted for inflation, highlighting the below-market flowthrough performance of Hilton as the previous operator of the Hotel. 

DAP’s Base Case underwriting assumes the asset will, after a guest-facing renovation in Year 2, deliver not only incremental top-line revenue growth but also stronger flow through, yielding a higher NOI margin.

Sensitivity Rationale

Should the DFW market not grow as expected by 2028, capital markets have not normalized, and bid-ask spreads persist, the Downside Case scenario assumes an NOI index of 90% to Base Case for all five years of the hold period, higher exit capitalization rate (50bps), and lower LTV refinance by 5% in Year 31,  the investment would be projected to yield an IRR of 9.4%1, Equity Multiple of 1.49x1, and Average Cash-on-Cash of 7.8%1. To be clear, this scenario assumes downward pressure on all three levers that fuel returns.

Finally, the Upside Case is what DAP believes to be an achievable scenario in which DAP executes on planned asset management functions from operations, revenue management, renovation execution, capital planning strategy (i.e., refinance), and best-in-class disposition marketing (e.g., reversionary cap rate compression). The return metrics based on this scenario are projected to be an IRR of 22.6%1, Equity Multiple of 2.24x1, and Average Cash-on-Cash Return of 18.7%1.

Learn more about the master planned, mixed use community Granite Park

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Third-party information not prepared by Driftwood. Neither Driftwood Capital nor any of its affiliates makes any representation or warranty as to the content thereof.

Frequently Asked Questions

Who is Driftwood Capital?

Driftwood Capital is an innovative investment business that we believe is built on the solid foundation of a most trusted name in hospitality. We’ve created a hospitality ecosystem to help make smart investments secured by sponsor capital. As professionals well-versed in acquisitions, development, and lending, we source, underwrite, structure, and close investments across diverse markets and asset types, from name brands to boutique properties. We then bring our extensive experience in hotel management to each investment, seeking to add value and improve operations to deliver superior risk-adjusted returns in hospitality.

How does Driftwood Capital differentiate itself from other hotel owners, operators, and developers?

  • Aligned Interests: We are invested in each deal alongside our investors.
  • Institutional Quality: We provide accredited investors access to investment opportunities traditionally reserved for institutional investors.
  • Above-Market Returns: Investors typically receive any quarterly distributions from day one, with annual returns historically between 7% and 10% and 15%+ XIRR.
  • Personalized Portfolio: Investors create their own investment portfolio by selecting the deals that appeal to them.

Is there an investment minimum?

Yes, generally, the minimum investment is $50,000 USD, although the amount could vary from deal to deal.

How often are distributions paid?

Any distributions are expected to be paid from operating cash flow at the project GP’s discretion, generally 30 days after the quarter closes.

How does Driftwood Capital’s business model work?

Driftwood Capital purchases cash-flowing hotels, land for development, or funds loans before syndicating to accredited investors. In the case of acquisitions, Driftwood Capital generally engages its affiliated management company, Driftwood Hospitality Management, to help streamline operations and improve performance. The company typically maintains an ownership stake in each deal. Based on historical performance, investors are expected to receive 7-10% annual returns and an XIRR above 15%.

How does Driftwood Capital update investors about their investments?

A fundamental pillar of Driftwood Capital’s value proposition and success is an experienced Investor Relations team that seeks to deliver timely, accurate, and transparent information to all investors. Our dedicated, in-house Investor Relations team is available to address current or potential investors’ questions or concerns. Additionally, investors are expected to receive quarterly reports on individual hotels’ operating and financial performance issued 30 days after the quarter closes. Finally, Driftwood Capital’s Investor Portal — investors.driftwoodcapital.com — further differentiates us from commercial real estate peers and provides investors 24/7 access to their investment anywhere in the world via secure technology. The portal also houses encrypted access to open investments and tax documents.

What tax documents does Driftwood Capital provide?

We typically provide all investors with a Schedule K-1 for their respective investment in any Driftwood-sponsored investment. Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually that reports each partner’s share of a partnership’s earnings, losses, deductions, and credits.

What documents are required to invest with Driftwood Capital?

Driftwood Capital requires the following documentation for compliance purposes:

Investing as an individual with one subscriber

  • Valid, unexpired government-issued ID
  • IRS Form W-9
  • Valid investor accreditation letter
  • Completed and executed the Subscription Agreement

Investing as an individual with more than one subscriber

  • Valid, unexpired government-issued ID
  • IRS Form W-9
  • Valid investor accreditation letter
  • Completed and executed subscription agreement by both investors
  • Given more than one subscriber, the investors MUST SELECT one of the following within the Subscription Agreement:
  • Tenants in common
  • Joint tenants with rights of survivorship
  • Tenants by the entireties

Investing via Entity (LP, LLC, C-Corp, or SD IRA)

  • Valid, unexpired government-issued ID
  • IRS Form W-9
  • Valid investor accreditation letter
  • Entity’s Articles of Incorporation and Operating Agreement (not necessary if investing via SD IRA)
  • Completed and executed the Subscription Agreement

Investing via Trust

  • Valid, unexpired government-issued ID
  • IRS Form W-9
  • Valid investor accreditation letter
  • Trust agreement
  • Completed and executed the Subscription Agreement

What is an accredited investor?

In the United States, to be considered an accredited investor, individuals must have a net worth of at least $1,000,000, excluding the value of their primary residence or have a household income of at least $200,000 each year for the last two years (or $300,000 combined income with your spouse or spousal equivalent) and have the expectation to make the same amount this year. The term “accredited investor” is further defined in Rule 501 of Regulation D of the U.S. Securities and Exchange Commission.

Why do I need to prove I’m an accredited investor?

Deals offered by Driftwood Capital or any of its affiliated funds are typically offered pursuant to SEC exemptions from public registration which require that we verify an investor’s accreditation.

How do I prove I am accredited?

In order to provide Accredited Investor status, you can provide financial statements from a bank/brokerage account showing net assets over $1 million dollars; 2 years of Federal tax Returns or a valid investor accreditation letter from a CPA or an attorney. An alternative would be to visit one of the third-party sites listed below and provide Driftwood Capital with an accreditation letter:

https://www.verifyinvestor.com/
https://www.earlyiq.com/investor-verification

* Driftwood does not accept self-certification of investor accreditation.

What is an investor accreditation verification letter?

An Accredited Investor Verification Letter is a legal document provided by a qualified accountant, investment advisor, or lawyer who can certify your accreditation. The verification letter is valid for up to 3 months from the date it is executed.

Why invest in hotels instead of other asset class?

Hotels are the most desirable asset class in this cycle

Inflation Impact

  • Historically, hotel NOI growth has outpaced inflation by a substantial margin. Source: FRED, CBRE Trends in the Hotel Industry
  • Hotel NOI recorded a CAGR of 5.5% in the ~50 years from 1970 to 2019, with inflation recording a 3.9% CAGR. This 155bp annual premium – a 41% differential – strongly illuminates the merits of investing in lodging as an inflation hedge over the past five decades. (Source: FRED, CBRE Trends in the Hotel Industry)
  • The current economic cycle is beginning to show similarities with previous inflationary cycles. If lodging performance follows the pattern set in past periods, hotel investors can expect outsized returns as compared to an average annual inflation rate of 3.96%. (Source: FRED, CBRE Trends in the Hotel Industry)

Tax Impact

Investing in hotels provides numerous tax benefits as well, including depreciation, tax-deferred cash-out refinancing and qualified business income deductions (“QBI”). This applies to all real estate investments but hotels as an asset class have historically had more favorable QBI and typically benefit from accelerated depreciation, all of which can serve to defer recognition of taxable income. (Source: IRS)

Driftwood Capital is an innovative investment business that we believe is built on the solid foundation of a most trusted name in hospitality.

We’ve created a hospitality ecosystem to help make smart investments secured by sponsor capital. As professionals well versed in acquisitions, development and lending, we source, underwrite, structure and close investments across diverse markets and asset types, from name brands to boutique properties. We then bring our extensive experience in hotel management to each investment, seeking to add value and improve operations to deliver superior risk-adjusted returns in hospitality.

Learn More