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Blackstone buys majority stake in Hotel del Coronado

February 07, 2011

Blackstone Group agreed to buy a majority stake in Strategic Hotels & Resorts Inc.'s Hotel del Coronado to help restructure the debt on the Southern California resort that was the backdrop of the film "Some Like it Hot."

Strategic Hotels formed a joint venture with Blackstone Real Estate Advisors and KSL Resorts, an affiliate of Kohlberg Kravis Roberts & Co., investing an undisclosed amount of cash into the luxury hotel and converting a portion of the existing debt into equity, Chicago-based Strategic said in a statement today. Deutsche Bank AG provided $425 million in debt financing.

The 670-room Hotel del Coronado, located on 28 acres of oceanfront property near San Diego, has hosted 11 U.S. presidents and celebrities including Marilyn Monroe, Madonna and Brad Pitt, according to its website. The transaction values the hotel at about $590 million, Strategic Hotels said. That is less than the $745 million the company bought it for in 2005, said Alan Reay, president at Irvine, California-based Atlas Hospitality Group.

"The San Diego market has started to rebound, and more importantly, the luxury hotel sector has rebounded very strongly," Reay said in a telephone interview. "For Blackstone this is an excellent investment. The Coronado is an irreplaceable asset. It's world famous. They are getting in at a much lower price than what Strategic purchased it at."

Luxury hotels have shown the biggest increases during the recovery of the last year, after being hurt more than their cheaper competitors by the recession. Occupancy at high-end hotels climbed to 66 percent in 2010 from 61 percent the prior year, according to Smith Travel Research Inc. That compares with a 64 percent occupancy rate in 2010 for all hotels in the top 25 U.S. markets.

The Del Coronado had a total loan balance of $630 million, according to Realpoint LLC. The debt was due to expire in mid- February after receiving an extension last month.

Blackstone, which in December took ownership of 14 hotels it sold to Columbia Sussex Corp. five years ago, will hold a 60 percent ownership interest and will become general manager. Strategic, as asset manager, and KSL, as operator, will hold 34.3 percent and 5.7 percent stakes, respectively.

"We are very pleased by this outcome, as it provides the opportunity for us to achieve attractive returns on our new investment, significantly reduces the hotel's indebtedness and maintains our ownership in this iconic asset," Strategic Chief Executive Officer Laurence Geller said in the statement.

Strategic's Fairmont Scottsdale Princess in Arizona and the InterContinental Miami also have loans with maturities this year, Strategic said in October.

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