The Orange County Register
09/08/15

Ritz-Carlton, Montage Will Get New Owner as Blackstone Group Agrees to Pay $6 Billion for Strategic Hotels & Resorts
By Jonathan Lanser

http://www.ocregister.com/articles/hotels-681579-year-hotel.html

The hotel buying binge continues.

Two of Orange County’s landmark luxury hotels, the 393-room Ritz-Carlton Laguna Niguel and the 250-room Montage Laguna Beach, will get a new owner: a real estate giant that owns, among other things, the Motel 6 budget chain.

Blackstone Group is buying Strategic Hotels & Resorts Inc., which owns the Montage and Ritz-Carlton, in a cash and debt deal worth roughly $6 billion. Chicago-based Strategic owns 18 luxury hotels, including San Diego’s Hotel del Coronado and the Essex House overlooking Manhattan’s Central Park. The deal is expected to close early next year.

Hotels in the region have been changing hands at a blazing pace. A record $4.4 billion was spent to buy 174 California hotels in the first half of the year, according to Irvine-based Atlas Hospitality Group, a hotel consulting firm.

This year’s sales spree included Strategic’s January acquisition of the Montage for $360 million, or $1.4 million per room – the highest valuation ever for a California hotel.

Buyers have focused on the high end. Total dollars spent on hotels in California the first half of this year – up 64 percent vs. 2014’s pace – stunningly surpass the full-year totals of every year except 2006.

Atlas’ first-half median selling price for California hotels is up 65 percent in three years.

“It’s a stampede for luxury hotels,” says Atlas’ president, Alan Reay. He thinks Blackstone’s deal, valuing Strategic’s 8,000 hotel rooms at roughly $750,000 each, is “definitely a good value.”

Luxury hotels are an appealing investment because “if anything is irreplaceable real estate, it’s this,” Reay says – and nobody is building new resorts. Also, the global economic recovery – while shaky in some ways – has handsomely rewarded the wealthy class that fills up resort rooms.

Commercial real estate has drawn big bucks as investors seek alternative bets with interest rates near historic lows. And hotels look relatively cheap, according to Green Street Advisors. Its lodging industry value index for August is up just 2 percent from its 2007 peak – the smallest gain from pre-recession highs among seven real estate sectors tracked.

Blackstone, which also controls the Hilton and La Quinta brands, is no stranger to Southern California’s luxury lodging market. Strategic gained full control of the del Coronado last year by buying out Blackstone in a deal valuing that resort at $1 million per room.

This year’s hotel buying spree is a stark contrast to just six years ago when the Great Recession slammed vacation and business travel – especially at the high end.

The owner of St. Regis Resort in Laguna Niguel, for example, lost the 400-room hotel to its lenders in 2009. The lenders weren’t thrilled to take the property back, and Reay said the resort was worth perhaps $100 million at the time.

In a clear sign of the turnaround, one of those lenders sold the St. Regis for $316 million in May 2014.

“Time and time again we learn, it’s ‘Location. Location. Location,’” Reay says.

And lots of money.