The Orange County Register
12/05/19

Dana Point’s Five-star Monarch Beach Resort Sold for $497 Million
By Jonathan Lansner

Dana Point’s five-star Monarch Beach Resort sold for $497 million

The five-star Monarch Beach Resort in Dana Point — where an average night will cost you $380— has changed ownership again, this time selling for nearly a half-billion dollars.

The decade’s tourism boom has made hotels extremely tradable. Hotel specialists Ohana Real Estate Investors from Redwood City acquired the 400-room luxury hotel from Denver-based KSL Capital Partners in October for $497 million, according to a report from financial analysts at DBRS Morningstar.

The blufftop resort, across the Pacific Coast Highway from the Pacific Ocean, sits on 162 acres — plus a 6.11-acre private beach club. Its portfolio of top-shelf offerings includes eight eateries, four retail shops, 120,500 square feet of meeting space, a full-service spa, three swimming pools, not to mention its own 18-hole golf course.

But at $1.24 million per room, is all that glitz a good value?

Hotel analyst Alan Reay at Atlas Hospitality says in the past two decades there have been 24 California hotels sold at a price above $1 million per room. Only the 2015 sale of the Montage Laguna Beach at $1.43 million per room was pricier.

“All in all, it shows what trophy hotels can command on a price per room in the Southern California Coastal market,” Reay says. “Huge barriers to entry which is what buyers and lenders both look for.”

DBRS Morningstar, in a report reviewing the $370 million mortgage within the Monarch Beach Resort deal, suggests the purchase price for a “trophy asset” was 40% too high. Still, the rating company thinks the deal makes financial sense.

The property has been running 65% full, which is good for a luxury resort, while boosting its average daily room rate to $380. And there’s “the property’s irreplaceable location, continued increase in revenue per available room from recent and ongoing renovations, lack of competitive new supply and extensive amenities.”

Twists and turns
Ownership of this resort has taken some odd twists in its 18 years.

Orange County’s Makarechian family spent upward of $240 million on the property that opened in 2001 under the “St. Regis” brand. In 2008, as the financial meltdown was in full boil, the hotel was the center of some ugly press when it hosted an executive retreat for American International Group just days after the insurer had gotten a federal bailout.

The resort’s owners then defaulted on $300 million of its loans in 2009 amid the Great Recession’s downturn in tourism. For a period, it seemed nobody wanted to own the resort.

In 2010, control of the resort was acquired by one of its debt holders, Washington Holdings of Seattle. At the time, the hotel’s value was seen as low as $100 million.

KSL bought the property from Washington in 2014 for an estimated $317 million. KSL ended the St. Regis alliance in 2016. DBRS Morningstar’s analysis shows the property’s bottom line has improved handsomely since going without a chain name.

The big sale price suggests KSL did very well for itself in its five years of ownership. Though DBRS Morningstar noted KSL did put $56 million into renovations at the resort.

And the new owner isn’t standing pat. Ohana is no stranger to Southern California luxury hotels as it has had financial or operational ties to many local resorts, including Orange County’s Montage Laguna Beach and the Ritz-Carlton Laguna Niguel.

Ohana plans to put $32 million into upgrades at the resort as well as applying a luxury brand by 2021, DBRS Morningstar noted. Reay speculates the Four Seasons is a likely choice, a name that’s not been in Orange County since the Irvine Co.’s Fashion Island hotel went independent in 2005.

Hotel deals
Southern California hotel investors have been active this year, although they switched gears a bit in 2019’s first half.

According to Atlas Hospitality Group, 56 local hotels were bought in the first half vs. 41 in 2018. But the average hotel sold had only 68 rooms this year vs. 104 in 2018. That helps explain why the price per room paid locally was running on average 22% lower this year.

The Monarch Beach Resort deal shows not every hotel buyer is thinking small. Especially when a trophy asset is up for sale.