Lodging Fund REIT III, a real estate investment trust based in Fargo, North Dakota, has recently announced plans to sell its portfolio of 19 hotels. Sponsored by Legendary Capital, also headquartered in Fargo, the fund was established in 2019 with a strategy focused on acquiring limited-service hotels across the mid-America region, intending to hold onto the properties for a period of five years.
As the end of this timeframe approaches for many of its properties, the REIT has decided to pursue an exit strategy, positioning itself for a potential sale or merger in 2025. This decision is outlined in a filing with the Securities and Exchange Commission, reflecting the challenging landscape faced by the lodging industry in the wake of the COVID-19 pandemic and evolving work patterns.
The limited-service hotel sector, which primarily serves price-sensitive corporate and leisure transient demand, has yet to witness a full recovery from the impact of the pandemic and shifts in work habits. These properties typically offer a modest range of guest services, minimal public spaces, and generally lack significant food and beverage operations.
According to CoStar’s U.S. hospitality analysis for the first quarter, mid-week corporate transient demand remains subdued, representing a critical component of the overall hotel demand recovery. Factors such as hybrid work schedules and advancements in meeting technology have influenced travel patterns, contributing to weakened room demand, particularly within the limited-service segment.
Lodging Fund REIT III has concentrated its investments in 80- to 200-room limited-service properties situated in America’s heartland, totaling approximately 2,260 rooms across 10 states. The decision to pursue an exit strategy is contingent upon favorable economic conditions conducive to such transactions, as disclosed in the fund’s SEC filing. The primary objective is to maximize profitability, with efforts to execute the plan within the next 12 to 18 months, subject to favorable market and other relevant conditions.
While the REIT has raised around $100 million through the sale of its shares as of the week ending Friday, Legendary Capital, the sponsor of the fund, has yet to provide further details or comments regarding the proposed exit strategy.
The decision by Lodging Fund REIT III to sell its portfolio of hotels reflects the ongoing challenges faced by the hospitality industry amid the pandemic recovery. With a focus on maximizing profitability, the REIT aims to navigate the current economic landscape while grappling with evolving market dynamics and investor expectations.
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