Locally based Eagle Four Partners was part of the largest hotel sale in the state in 2020 when it and other investors paid $216 million for the Newport Beach Marriott Hotel & Spa near Fashion Island.
Its recently completed purchase of another nearby hotel property, the currently shuttered Fashion Island Hotel, could well turn out to be Orange County’s priciest hotel deal for 2022.
However, the transaction is likely to trail other deals in California’s quickly improving hospitality market by per-room value, due to terms of Eagle Four’s deal with Newport Beach’s Irvine Co.
An affiliate of Eagle Four, operating under the 690 Hotel LLC name, last month paid Irvine Co. $143.6 million for the 295-room Fashion Island Hotel, according to property records.
The deal works out to a price of about $487,000 per room for the property at 690 Newport Center Drive, which next year will reopen as the Pendry Newport Beach.
This location will be the third Southern California property of Pendry Hotels & Resorts, a growing luxury boutique hotel line from Irvine-based Montage International, following spots in West Hollywood and San Diego.
Eagle Four took out a $146.3 million loan with Los Angeles-based Acore Capital Mortgage to fund the deal, according to property records.
Neither Eagle Four nor Irvine Co. disclosed terms of the mid-February sale when the deal was first announced.
The $487,000-per-room price paid for the forthcoming Pendry property compares to the $406,000-per-key price paid for the 532-room Newport Beach Marriott Hotel & Spa in 2020, a deal that was funded in part with $170 million in financing.
That property is being revamped and rebranded as new Marriott-branded project called Vea Newport Beach.
Other luxe resorts in Orange County and elsewhere in the state have traded hands for much more, on a per-room basis.
2019 saw the Monarch Beach Resort in Dana Point sell for a local record price of nearly $493 million.
The Monarch resort, which has since been rebranded as a Waldorf Astoria property by new owners Ohana Real Estate Investors, sold for $1.2 million per key.
Elsewhere in the state, Irvine’s Sunstone Hotel Investors Inc. (NYSE: SHO), last year paid $265 million and $177.5 million for the Montage Healdsburg and Four Seasons Napa Valley, respectively. Both Napa Valley properties sold for a little more than $2 million a key.
Factor in an underlying ground lease for the future Pendry as the reason the price wasn’t higher.
Irvine Co. will maintain ownership of the underlying land for the hotel, under a ground lease that runs 80 years, according to property records. The Eagle Four affiliate will have the right of first offer to buy out the underlying lease, if Irvine Co. ever chooses to sell.
Lease Term a Key
Ground lease deals are common in the hotel industry, where many properties sit on leased land.
A few years ago, nearly half of Sunstone’s properties involved similar types of ground leases that required the real estate investment trust to pay rent to the parcels’ owners. It has since worked to exit many of those types of arrangements.
In 2018, for example, Sunstone sold the Hyatt Regency Newport Beach, a 408-room property on 26 acres next to the Back Bay area.
Woodridge Capital Partners LLC, a Los Angeles-based real estate investment and development firm, bought the property for $95 million, or nearly $233,000 per room. That’s less than half of the per-room price of the future Pendry hotel in the city.
The Hyatt Regency had about 30 years left on the ground lease at the time of the sale, Sunstone officials said around the time the deal was completed.
While longer term leases, such as the 80-year deal at the Fashion Island property, usually aren’t an issue for hotel investors, once the lease runs under 30 years, it can cause problems.
At “a certain point, it starts to become more and more difficult to finance shorter-term ground leases,” former Sunstone CEO John Arabia said at the time of the 2018 sale in Newport Beach.
The Pendry Newport Beach, when open, will count about 295 rooms including 82 suites, many with ocean views, along with 22,000 square feet of meeting and event space.
It will be OC’s 39th-largest hotel by room count, and the sixth-largest hotel in Newport Beach, when it opens next year.
The 20-story property next to Irvine Co.’s Fashion Island shopping center is another notable local investment for Eagle Four, which over the past decade has built a sizeable hotel and resort portfolio in and around its hometown.
Other area properties in its collection include the Balboa Bay Resort & Club and Newport Beach Country Club, plus the Paséa Hotel & Spa in Huntington Beach.