Startup Eyes Hotel, Healthcare Buying Sprees

Real Estate Alert | July 14, 2021

Newly formed fund shop Scarp Ridge Capital Partners is looking to buy $900 million of hotels and senior-housing properties over the next several years.

Managing partner Greg Rush founded the New York firm in April. He since has hired acquisitions veterans Kari Schmidt and Rick Shamberg. And in the past few weeks, the shop closed on a $300 million equity pledge from an unidentified family office.

The new vehicle, Scarp Ridge Capital Partners, will invest $20 million to $50 million of equity per deal. It can buy properties or partial interests, and can provide owners or operators with senior debt, mezzanine debt or preferred equity.

The vehicle will target a mid-to-high-teens return by focusing on distressed assets. The thesis is that by acquiring properties at discounts to replacement cost, Scarp Ridge can add value through swapping hotel flags, capital improvements and/or better management. In some cases, simply recapitalizing a property may provide existing owners or operators runway capital, allowing them to navigate through the downturn.

For hotels, a space drawing increased interest from investors across the board, the shop is focused on markets with strong long-term demand drivers. It will look nationally at branded and independent hotels, as well as across chain-scale segments and it will partner with operators to run the properties.

CBRE said in a new report that capitalization rates are falling for senior housing this year, presumably as investors, realizing concerns about the pandemic’s impact on the sector never materialized, once again warm to the asset class.

The firm also will consider opportunistic deals outside of those sectors in partnership with experienced owner-operators.

Rush said that while some distressed opportunities exist, it’s clear the wave of deals many expected at the start of the coronavirus crisis is not coming.

“My view and my approach is there will be pockets and bespoke opportunities where we can create structured solutions for owners, operators and developers.” he said. “But if you look at the market as a whole, we’re not seeing the broad-based distress a lot of us anticipated sitting in the darkest days of Covid.”

Rush said hotels and healthcare properties, particularly senior housing, are similar in that each “went through some cyclical distress” and generally require more daily operational expertise than most other asset classes. Scarp Ridge expects to hire additional staff to create a vertically integrated model to support strategy.

The firm wants to be active in the current market, Rush said, as property values are only going to rise as the country’s economic recovery gains steam. “Everything we buy today is going to worth more tomorrow,” he said.

Before founding Scarp Ridge, Rush was a partner and managing director at Cadre, a New York syndication firm led by former Blackstone pro Ryan Williams. Rush spent two-and-a-half years there, leaving in May 2020. Before that, he was best known for a 10-year stint at Dune Real Estate of New York, which he left in 2015 as a partner. He previously was an executive director at Morgan Stanley.

Rush will focus on hotel deals, while managing directors Shamberg and Schmidt will work on senior-housing investments.

Shamberg has worked at a variety of regional healthcare firms and has partnered with Rush in the past. Schmidt spent 23 years at Brookdale Senior Living of Brentwood, Tenn., leaving in April as a senior vice president.