Kennedy Wilson Buys Lake Tahoe Resort At Substantial Discount

By Jon Peterson

Kennedy Wilson Holdings Inc. and an investment partner have acquired the 170-room Ritz-Carlton, Lake Tahoe resort hotel and the 23-unit Ritz-Carlton Club, Lake Tahoe condominiums in Truckee from a group of lenders for far less than the property’s $300 million development cost. The relatively diminutive sale price is not a surprise.

The international real estate investment and services firm and the unnamed institutional investment partner each paid $18 million, or $36 million total, to acquire all of the equity in the property. Los Angeles-based Pacific Western Bank, a subsidiary of PacWest Bancorp, extended a mortgage of $45 million, which includes some financing for capital expenditures. The bank has $5.5 billion in assets.

“We are thrilled with the property,” said Stuart Cramer, president of KW Residential Investment Group. “We have branded the condo units, and they will be sold as Ritz-Carlton products, and we think that there will be many interested parties.”

The property’s performance will almost certainly improve with a real estate owner rather than bank ownership, Cramer said.

The sellers were US Bank N.A., HSBC Holdings plc, Bank of America N.A. and JP Morgan Chase & Co., who extended an original loan of $157 million to develop the project, which opened in 2009. None of the 23 residential units was ever sold.

“We did receive a good deal of interest in the property. A total of 15 bids were made, and they represented many different kinds of buyers,” said Holden Lim, San Francisco managing director for Holliday Fenoglio Fowler, which represented the banks in the sale. The cost of the original development was $300 million, excluding the land cost.

The buyers hope to sell the condominiums, which vary in size from 1,500 square feet to 3,500 square feet, for $1.5 million to $4.5 million apiece. The purchase includes access to all of the amenities that exist at the resort, which include a 17,000-square-foot spa, 15,000 square feet of indoor meeting space, two heated swimming pools and state-of-the-art fitness and business centers.

Kennedy Wilson likes the location of the Ritz-Carlton property. “Within a three-hour drive of the property, there is a population base of 14 million that we can market the property to. This is the only Ritz-Carlton in its region, and it would be highly unlikely that another property of its kind would be developed in the area any time soon,” Cramer said.

Denton Kelley, principal with Sacramento-based LDK Capital, which recently bought 81 completed homesites in Truckee that are part of a much larger master-planned community, said Kennedy Wilson bargained well: “It was a good deal given that [the price] was low compared to the replacement cost. I also think that there will be limited competition in the market for the condos given the price range they are in,” Kelley said.

The resort performs well during the ski season, Cramer said, but less so at other times of the year. “We are hopeful of improving the operations during the spring, summer and fall months,” he said. The owners plan to emphasize the area’s outdoor attractions such as hiking trails, golf, tennis, mountain biking and, of course, visits to Lake Tahoe itself. “These kinds of amenities could be for either couples or families,” he said.

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West Coast Commercial Real Estate News