Just three years after negotiating a deal with a mega investment firm to save the Hotel del Coronado from a loan default, Strategic Hotels & Resorts announced Tuesday that it will buy out that company’s entire interest in the iconic property.
The Chicago-based real estate investment firm, which currently has a 36.4 percent ownership stake in the hotel, said it has signed an agreement to acquire for $210 million the remaining 63.6 percent ownership interest from the Blackstone Group, a transaction that would make Strategic the sole owner.
The agreement, which includes Strategic assuming $475 million in mortgage debt, values the 757-room oceanfront resort at roughly $787 million, the equivalent of a little more than $1 million per room. While such a per-room sum was rare just a few years ago, it is much less so now as the luxury hotel market stages an impressive comeback from the depths of the recession, said hotel broker and analyst Alan Reay.
“In 2012, there were only five hotels that were sold or valued at over a million dollars a room,” said Reay, president of Orange County-based Atlas Hospitality Group. “In 2013, the number was over 20, so the unheard-of million dollars per-room ceiling is definitely being breached. The luxury hotel market was the segment that was impacted most during the downturn, and now the appreciation in that market has outstripped any other segment of the hotel industry.”
In early 2011, the Coronado hotel was able to avert a default on more than $600 million in loans when Blackstone came to the rescue and invested $100 million in the property and became a majority owner. At the time, Strategic, whose holdings include the Ritz-Carlton, Laguna Niguel, also invested a substantial sum as part of the restructuring agreement. The hotel’s owners had been facing an imminent deadline to repay $630 million in loans.
In a statement, Strategic CEO Raymond L. “Rip” Gellein said his company was “thrilled” to fully own an iconic hotel in the “very attractive San Diego market.”
He added, “The Hotel Del is experiencing excellent growth in group and transient business, and is expected to outperform in the coming years given the lack of any new supply in the San Diego market. Further, the hotel is not encumbered by a long-term hotel management contract which creates additional flexibility and value as owner of this property.”
The transaction is expected to close in the second quarter of this year.
During the first quarter of 2014, the hotel’s revenue per room, an industry barometer of hotel performance, rose 11 percent, Strategic reported.
The hotel recently completed an extensive $13 million, two-year renovation that encompassed the original Victorian guest rooms, Beach Village villas and cottages, common areas and dining venues.
This article was originally published in San Diego’s Union Tribune and can be found in its entirety HERE.