HEI Hospitality, which targets full-service hotels and resorts with 200 to 500 rooms, is in the beginning stages of a buying binge, powered by a $275 million private equity fund formed in June 2004.

Since its inception in 2002, HEI has rapidly emerged as one of the industry's most aggressive hotel acquirers. Its fund, called HEI Hospitality Fund, purchased the last six of the company's 25 properties, including its most recent $77 million acquisition in January — the Hilton Long Beach Hotel and Executive Meeting Center. Plans call for a second fund in the near future, says Chairman and CEO Gary Mendell.

“Our goal is to acquire $400 to $500 million of hotel real estate each year for the next three to five years,” says Mendell, adding that HEI will spend an average of $30 to $70 million on each property.

The Hilton Long Beach, the company's third California property, has 393 rooms, 21,600 sq. ft. of meeting space, a 12,300 sq. ft. executive meeting center and an adjacent 5.6 acre parcel of land zoned for residential or office construction.

“We currently are evaluating a number of properties, including hotels in Los Angeles, Orange County and San Diego. We would like to add to our portfolio at least three to five additional major properties on the West Coast,” says Stephen Mendell, executive vice president of acquisitions and development.

This isn't the first time HEI has been a mover and shaker. The Mendells' previous hotel company, called HEI Hotels, sold a portfolio of 10 hotels and its management company to Starwood in 1997.

Gary Mendell served as Starwood's president for about a year and then quietly slipped out of the hotel industry limelight, focusing instead on investing in private companies. Now, however, HEI is back on the scene seeking out and buying full-service hotels in major metropolitan and resort markets under multiple brands, including Marriott, Hilton, Sheraton and Westin. The hotels are managed by HEI subsidiary Merritt Hospitality.

Call it perfect timing, but the industry is recovering and full-service hotels in urban markets with little new construction are hot properties. “Gary is one of the smartest people in the industry. He timed his exit well and is back at a time that makes all the sense in the world,” says R. Mark Woodworth, executive director at PKF Consulting in Atlanta.

While it may be prime time to buy hotels, it's also an extremely competitive market as hotel groups, equity funds, private investors, and REITs vie for the same properties. Yet, HEI has not only managed to snag some of the best full-service hotel assets, but it also remains focused on operations from day one, says Art Buser, managing director at Chicago-based investment advisory firm Jones Lang LaSalle Hotels.

HEI, which has assembled an all-star team of real estate veterans and hotel operators, can effectively handle closing deals and transitioning hotels to a new management company at the same time. This is a key reason why HEI is so successful, says Buser.

Oftentimes, he explains, a hotel loses sales when the property changes hands. Yet, at HEI, the operators put a transition plan into place right away to avoid lost momentum, says Buser.

In addition, when HEI approaches a deal, it immediately assesses necessary enhancements and hidden value. “They're busy buying real estate, yet they don't let the business skip a beat,” says Buser.

The Hilton Long Beach, for example, had just built its multi-million dollar Executive Meeting Center when HEI saw the long-term income potential, according to The Plasencia Group of Tampa, which marketed the sale. Bernie Murphy, vice president of The Plasencia Group's western region, says “HEI Hospitality valued the vision and prevailed over a large number of prospective purchasers.”