Rockbridge has stayed on top of the volatile hotel market through the up and down cycles of the past two decades. CEO James Merkel tells how the firm maintains consistent returns-and how it raised its largest fund to date in 2014.

James Merkel took over as CEO at Rockbridge about a week after Lehman Brothers collapsed in 2008. Disaster loomed large for players in the private equity, real estate and consumer hospitality markets.

"We couldn't have been more in the bull's eye of what was affected in the global financial crises," says Merkel, reflecting on the transition of leadership from his mentor, former CEO, founding partner and chairman Ron Callantine. "We were in real estate and hotels. We also invest in loans to the hospitality market."

Rockbridge didn't lose a single asset during the recession, says Merkel. "It's really a testament to our strategy--how we went into the cycle, the types of investments that we make and staying disciplined."

One of the firm's disciplines is making sure their investment properties have cash flow-a necessary strategy in the volatile hotel and hospitality industry at the core of Rockbridge's investment funds.

Rockbridge fixes what's wrong with hotels, says Merkel, and many hotel owners underinvested in their properties during the recession. At the same time, millennials with very different demands became hoteliers' key consumers.

"They pay the most money for hotel rooms than any other segment of demand," says Merkel. "We see opportunity in fixing those broken assets, but the other opportunity is really transforming the product to meet what the consumer wants today."

What millennials want is mirrored in new hotel projects opening across the country's major metro areas: sleek décor with large social spaces and an emphasis on local artwork and cuisine. The Hilton Polaris is among Rockbridge's Columbus area investments.

In 2013, Rockbridge acquired the former Canterbury Hotel and renovated it as the new Le Meridien Indianapolis. The hotel features the work of local artists and an entrance that opens into the separately branded Spoke & Steele, a farm-to-table restaurant with a craft cocktail bar. Rockbridge invested $12 million to renovate the 100-room historic hotel. Its previous owners were underwater, says Merkel.

"At some point, nothing is going to fix it but for a major capital infusion to get it back on track. That is consistent since I got in the business 20 years ago," says Merkel. "What they ultimately do is sell it."

Defaults in the recessionary real estate market were dominated by defaults in the hotel sector, Merkel says, "because of the volatility of cash flow."

Defaults notwithstanding, the fundamentals of the hospitality market are as good as they've ever been during his career, adds Merkel. "You have very strong demand growth. The industry's been setting record demand marks for the last 42 months in a row. Supply growth is at historic lows, so you have pent up demand. That's driving performance of the properties."

Rockbridge funds have delivered consistent investor returns through nearly two decades of market cycles and varying interest rates. Rockbridge ranks among the top consistent performers in real estate private equity investments internationally according to Preqin, a research firm covering alternative equity investments.

Rockbridge closed its largest fund to date in November. At $438 million, Rockbridge Hospitality Fund VI closed $88 million over target with many new investors-the result, Merkel says, of outreach to a diversified pool, including institutional investors. The fund includes contributions from foundations and endowments, insurance companies, high net-worth pension funds and international institutions.

"In 2006, our goal was to bring a lot of new institutional investors that were going to fuel our growth into the future," says Merkel. In 2010, Rockbridge first began marketing its funds to potential investors. Institutional investments are difficult contributions to win: Collectively they represent a large amount of money handled by a relative few investment managers and tend to stay with firms they know and trust.

"In 2011, we did a fund with Ohio PERS that became a $225 million fund," says Merkel. "Once we got investors to come and do due diligence on us, we had a very high hit ratio of closing that investor."

Rockbridge returns keep investors returning. As of January, Rockbridge had invested $174 million of Fund VI, and looks to invest between $100 million and $200 million a year. Merkel and his team are focused on what's next in hotels.

"We realize we're only as good as our next deal. That focus enables us to stay humble and continue to remain relevant to the market, because the market's going to change."