By Emily Santiago-Molina | August 12, 2024

A California-based hospitality investment entity with ties to the Marriott family has bought Laguna Beach’s Pacific Edge Hotel, the Business Journal has learned.

The hotel has traded hands for $80 million, or $640,000 per key, in a deal making it the largest hotel sale in California so far this year.

New York-based Highgate Hotels LP and Morgan Stanley & Co., which purchased the property together in 2017 for $57.5 million, sold the 125-room property to Dune Drifter, a new entity.

It is the state’s highest priced transaction in the first six months of this year, according to Alan Reay of Atlas Hospitality.

The standing top deal in Orange County remains the purchase of the 260-room Montage Laguna Beach by Tilman Fertitta for $650 million, north of $2.5 million per key, in late 2022.

Pacific Edge fronts the ocean on Sleepy Hollow Lane and is about half a mile south of Broadway Street and the main entry to the downtown district.

Patrick Deming from Eastdil Secured LLC was the listing broker.

Via this local takeover from New York’s Highgate, the new owners will ensure that the renovation and business plans submitted to the city for Pacific Edge would come to fruition, sources involved with the deal told the Business Journal.

A year after Highgate’s 2017 purchase of the hotel, the firm began plans to update the Pacific Edge Hotel in order “to take advantage of the location and strength of the Laguna Beach market,” sources said.

Affordable Hotel Rooms

The previous owners wanted to renovate the hotel and add another 25 rooms.
Renovations were first approved by the city council in 2021 before going to the California Coastal Commission, which gave its okay after a hotel union came out in favor of the renovation.

“We are in strong support” of recommendations by the coastal commission staff, said a 2022 letter by Ada Briceño, co-president of the Unite Here Local 11 union.

“We are proud that the advocacy of hotel workers and the community has resulted in an excellent project that will increase coastal access in the City of Laguna Beach for working families and set a new standard for the region if approved.”

The previous owners obtained approval from the Coastal Commission after promising a unionized hotel, sources told the Business Journal.

“In general, buyers do not like to purchase union hotels, as they are much more expensive to operate,” an industry source told the Business Journal.

Some of the requirements by the Coastal Commission are sure to eat into profits.

Highgate proposed to make six rooms more affordable at $130 per night along with payment of a mitigation fee.

“This proposes exactly what we advocated for, which will increase access to the coast,” Briceño said in her letter.

Pacific Edge this month is currently charging rates ranging from $246 to $759 a night.

Most hotels in the vicinity charge from $400 to $1,000 per night. The Montage Laguna Beach, a luxury hotel located two miles south along the coast, charges $1,800 per night this summer.

In OC overall, the median price per room is down 4.2% for the first six months of this year compared to 2023.

Even with the $80 million sale of Pacific Edge, individual hotel sales in the region are down by half from last year, according to data from Atlas Hospitality.

Marriott Ties

The buyer, Dune Drifter, is led by Cramer Williams, who is a private equity professional. He has a long history on Wall Street, including being a Goldman Sachs analyst and a Bain & Co. consultant.

He is a board member at Applied Business Software Inc. which supplies software to the mortgage industry.

Williams is a co-founder and also a managing partner at Dauntless Capital Partners.

Another co-founder and managing partner is Chris Harrison, the grandson of Bill Marriott who became known for building the hospitality giant. Harrison’s brother-in-law, Craig Ballard, is also a Dauntless co-founder.

Dauntless purchased three hotels located on Maui from Newport Beach’s R.D. Olson Development for about $290 million, the Business Journal reported in 2021. Dauntless Capital Partners isn’t involved in the Pacific Edge acquisition, a spokesman said.

Nine Building Hotel

Pacific Edge, built in 1963 and previously known as Vacation Village Hotel, spans 44,687 square feet. The coastal property also has 4,000 square feet of meeting space and two restaurants, The Deck and Driftwood Kitchen.

It was Highgate’s only Orange County property out of a portfolio of more than 100 hotels totaling about 30,000 rooms. The transition to locally based ownership should help turn the hotel into an improved asset for the city, sources said.

The resort consists of nine buildings across 11 parcels, which vary in architectural style and were accumulated by the Haneline family during their 40 years of ownership before selling to Westport Capital Partners LLC in 2006.

The proposed renovation aims to remodel all the nonconforming facilities to match industry standards and be complimentary to each other.

The all in cost per key is likely to be over a million dollars after the improvements and additions are made.

“The design intervention attempts to capture dominant themes across the building sites to unify the properties through a shared color and material palette, architectural details and landscape character,” the project proposal says.

New office and conference areas and a café with outdoor dining will be added as well.

Other physical changes include a relocation of the pool and spa, reconfiguration of the parking areas, a new porte cochère entrance, air conditioning and roadway improvements along Sleepy Hollow Lane.

Over 60 more seats are proposed for the new café and the project will also increase the number of seats at the two existing restaurants.

Laguna Beach city staff told the Business Journal that there has been no recent permit activity.