Orange County Business Journal
09/10/18

Montage, Ritz Up for Sale, Again
$1B VALUATION, BUT DISTRESSED SELLER MAY CUT PRICE

By Paul Hughes

http://www.ocbj.com/news/2018/sep/10/montage-ritz-sale-again/

Two of Orange County’s poshest coastal resorts are back on the block and might be worth nearly $1 billion combined based on a hot hotel market and the properties’ prominence.

But a buyer might get a discount due to a motivated seller—a distressed Chinese insurance firm, according to industry sources and Business Journal analysis.

Comparable properties and per-room prices suggest Montage Laguna Beach and Ritz-Carlton Laguna Niguel would together be worth around $950 million, according to Alan Reay, president of Irvine-based hotel consultant-broker Atlas Hospitality Group.

“These are trophy assets virtually impossible to duplicate or replace,” he said.

In less than four years, the Montage has changed hands three times, the Ritz twice.

Current owner Anbang Insurance Group Co. of Beijing, was taken over by the Chinese government this year. In June, China pumped $9.7 billion into the company and put it under a state-run insurance fund; it’s now selling assets.

The Montage and the Ritz are part of a 15-property portfolio Anbang bought in September 2016 for $5.5 billion from Blackstone Group LP.

Strategy

Anbang “was a strategic buyer,” said Robert Rauch, president and chief executive of hotel developer, owner and operator RAR Hospitality Group in San Diego, and a consultant to resort developers and hotel owners, including Wanda Group in Beijing.

“They weren’t looking at return on cash; they were looking for inroads into the U.S.,” Rauch said. Anbang was willing to pay more for hotels and planned to hold them longer—until it began to falter.

Its spending spree included $1.95 billion in 2015 for the Waldorf Astoria in Manhattan, which isn’t part of its planned portfolio sale, according to the Wall Street Journal last month.

Whether the OC resorts will be sold as part of the portfolio or separately remains to be seen. The Wall Street Journal reported in August that Anbang is listening to offers for individual properties but could raise cash quicker if it sells all hotels together.

Anbang didn’t return a phone call, and Blackstone, the Montage and the Ritz declined to comment.

Minimums

Montage has come a long way from when there was a 300-unit trailer park in the area called Treasure Island—named for a 1934 movie starring Wallace Beery, Jackie Cooper and Lionel Barrymore that was filmed nearby.

Treasure Island Associates, a partnership of Richard A. Hall Co. in Costa Mesa and Merrill Lynch Hubbard in New York, bought the 27-acre site in 1989 for $43 million, according to the Los Angeles Times. The last residents moved out in 1997, and Montage opened in 2003 at a cost of about $190 million.

The Montage “at minimum, minimum, minimum, is $1.5 million a room,” and possibly as high as $1.7 million, Reay said. The midpoint would put the 260-room property at $416 million.

The 393-room Ritz is worth about $535 million based on $1.35 million to $1.45 million per key, he said.

“If they were to be appraised or sold individually, those are the prices I would expect.”

He based his estimates on conservative per-room prices, recent high-end hotel sales, and comparisons to other area resorts (see separate item, this page). For example, the 358-room Ritz-Carlton Bacara in Santa Barbara sold a year ago for almost $1.1 million per room.

The Montage and the Ritz recently renovated some spaces, plan more work, and “are in good shape,” Rauch said.

The Montage is in such high demand that its average daily rate is around $700, he added.

“Montage is one of the few hotels that can drive [room] rates,” setting the pace among competitors, he said.

One key metric that might reduce the resorts’ sale price is an increased capitalization rate—net income divided by purchase price. Rauch said revenue likely didn’t grow fast enough to keep up, so prices could come down.

Profit Hint

A taste of the resorts’ profitability was provided by Chicago-based real estate investment trust Strategic Hotels & Resorts Inc. in a 2015 report that put the Montage’s earnings before interest, taxes, depreciation and amortization at $9.6 million and the Ritz $10.5 million for the quarter ended Sept. 30, the resorts’ high season.

Strategic bought Montage in 2015 from Ohana Real Estate Investors LLC for $360 million, or $1.4 million a room. Strategic purchased the Ritz in 2006 from private sister company Strategic Hotel Capital LLC for $330 million, or $850,000 per room.

Strategic sold the two resorts to Blackstone in late 2015 as part of the 16-hotel portfolio for $4 billion in stock and debt at an enterprise value of $6 billion, the Wall Street Journal reported.

The following year, Blackstone sold the portfolio to Anbang minus San Diego’s Hotel del Coronado, which wasn’t included because of the nearby naval base.

Resorts for Sale

Potential buyers could mean sovereign wealth funds or Blackstone buying the properties back, Reay said.

Real estate investor Lockwood Development Partners hired China-based consultants LehmanBush—co-founded by Neil Bush, brother and son of former U.S. presidents—to help with a bid, according to the New York Post and other sources.

Lockwood’s website lists Alan Turner, based in San Clemente, as project manager and director of California operations. A message left for Turner through a Lockwood representative wasn’t returned by press time.

Reay said there’s no chance Anbang’s hotels won’t change hands.

“They have to sell.”