The owner of Generator Hostels, a London-based operator of upscale youth hostels, is preparing a sale of the company that is expected to bring up to $500 million, according to people familiar with the matter.

Real-estate investment firm Brookfield Asset Management and private-equity firm TPG are finalists in the bidding process, these people said. An unknown London-based investment firm is the third bidder. Final bids are due next week, said people briefed on the matter. The investment bank Lazard is running the process.

There is no guarantee there will be a deal, especially if bids fall short of expectations, according to people familiar with the matter.

Generator owns and operates 12 properties in Europe, and its first U.S. property is slated to open next year in Miami Beach. It is controlled by the London private-equity firm Patron Capital Partners. Invesco Ltd., an Atlanta-based investment firm, is a minority owner.

Youth hostels have evolved over the years from dingy, cramped quarters with a communal restroom to the more modern version that tries to emulate stylish boutique hotels.

This recent wave hostel companies, mostly run out of Europe, operate properties featuring private bathrooms, vibrant bars with specialty cocktails and yoga, dance and other group activities. While some hostels offer private accommodations, most still provide shared rooms with three or more beds.

At a time when virtually all lodging companies are trying to find fresh ways to attract a younger clientele, upscale youth hostels have started to attract private capital. Private-equity investor Ronald Burkle's Yuciapa Cos. is an owner of Freehand, which operates hostels in Miami and Chicago with plans for properties New York and other cities. AccorHotels SA, the giant Paris-based hotel operator, recently announced it was launching its own youth hostel brand.

The number of youth hostels in the U.S. still greatly lags behind Europe, where they have a more developed history. In some cases there are legal barriers. In New York, for example, a local law limits the number of people who aren't traveling together that can stay in a room at the same time.

Write to Craig Karmin at craig.karmin@wsj.com

(END) Dow Jones Newswires

December 09, 2016 12:05 ET (17:05 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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