The Wyndham Orange County hotel in Costa Mesa’s arts district has been sold at a foreclosure auction, trading hands at half of what the property was valued at three years ago.
An affiliate of Wincome Group, a Hong Kong-based real estate developer and investor, bought the 238-room hotel for $21 million at an auction held late last month at Placentia City Hall.
Wincome Group won the auction by paying $1 more than the starting bid for the property, according to attendees at the auction.
It’s the third local hotel owned by Wincome, whose holdings also include office, retail and housing properties in the U.S., Asia and Europe.
Wincome’s largest property in OC is the 358-room Anabella Hotel—OC’s 25th largest hotel based on room count—which is next to the Anaheim Convention Center on Katella Avenue. It also owns the Carousel Inn and Suites, a boutique hotel across the street from the Disneyland Resort.
The Wyndham was last owned by an affiliate of Newport Beach-based Makar Proper-ties LLC, which bought the Costa Mesa Arts District hotel in 2006 for $42 million.
Makeover Plans
The Wyndham initially was eyed for a major makeover by Makar. The developer filed plans to build a 23-story condominium tower on the property while cutting back the number of rooms at the boutique hotel.
Those plans—along with plans from other developers to build as many as eight high-rises in and around South Coast Plaza—were put on hold as the housing market slumped.
The property went into default in June, and Bank of America Corp. began foreclosure
proceedings against the hotel’s ownership in July. The property soon was put under the control of a court-appointed receiver.
There were $31 million in commercial mortgage-backed securities-related loans tied to the Wyndham at the time the property went back to the bank, according to court records.
The Wyndham is the second big OC hotel of Makar’s that was taken back by lenders this year.
In July, ownership of the St. Regis Monarch Beach Resort in Dana Point was turned over to New York-based lender Citigroup Inc. after Makar and its financial partner fell behind on mortgage payments.
Last month, trade reports said Citigroup was looking to sell the hotel to undisclosed foreign buyers in a deal valued at $245 million to $250 million. That deal has yet to be confirmed.
More sales of distressed local hotels are expected, according to Rod Apodaca, managing partner for Los Angeles-based PKF Capital Inc., a hotel brokerage and consulting firm.
There’s close to 50 hotels in California that are in some state of distress, according to PKF’s research. For any big asset bought near the peak of the market in 2006 and 2007, values likely have fallen nearly 50%, as was the case with the Wyndham, Apodaca said.
Other than the St. Regis and Wyndham Costa Mesa, there’s been no record of any other local hotels falling into foreclosure or receivership so far this year.
Apodaca and partner Bob Kaplan represented Irvine-based Rosanna Inc., an affiliate of Wincome, in the sale.
The buyer “had been looking for more (local) opportunities. They think they paid a good price,” Apodaca said.
Wincome plans to put some money into revitalizing the Wyndham, whose occupancy rates are said to be below the norm for that part of the county. Changing to an independently-run boutique hotel is said to be a possibility.
Occupancy rates for Costa Mesa hotels are running about 70% so far this year, slightly above the OC average of about 67%, according to PKF’s figures. The average daily rate for a Costa Mesa hotel is about $104, compared to $135 for OC as a whole.
Whether the new owner plans to move ahead with any condo development at the Wyndham site depends on how well the market rebounds, and when.
Auction
The foreclosure auction—one of the largest seen for a local commercial property during the downturn—is said to have attracted a large number of interested parties and potential bidders, although Wincome was the only attendee to bid over the initial asking price.
In addition to some non-local hotel investors, attendees at the event included representatives from Newport Beach-based Tarsadia Hotels and San Clemente’s Sunstone Hotel Investors Inc., as well as representatives from Makar, according to others who attended the auction.
Other bidders were said to be interested in the property if its price were reduced to the $18 million to $20 million range, according to sources.