LOS ANGELES—Sonnenblick Development LLC has invested US$100 million to acquire land on which to build seven luxury resorts in the United States.
The US$100 million represents all the capital raised by Sonnenblick as part of an equity fund put together “when everyone else was running away from the hotel development business,” said Bob Sonnenblick, the company’s principal.
The seven full-service US$100-million projects are in various stages of development, Sonnenblick said. He declined to provide details about the resorts, such as location, until the properties have broken ground. He did say the resorts would be in waterfront locations with golf courses.
“I don’t want to say I’m building on the west side of Manhattan and then have 10 other guys looking around the west side of Manhattan,” he said.
In addition to the seven land buys, Sonnenblick said the firm is doing three additional development deals on the grounds of two “major” U.S. airports. The smaller airport hotels are “3-star” projects, he added.
Los Angeles-based Sonnenblick has other hotel developments in its history. The firm was also behind the Loews Santa Monica; the Boca Raton Resort & Club, a Waldorf Astoria Resort in Florida; and the Ritz-Carlton at Treasure Hill in Park City, Utah.
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Opportunity in the downturn
The economic downturn provided an opportunity for Sonnenblick to go on its buying spree.
“The lowered land prices and construction costs and interest rates make a lot of these deals pencil out better than they have in the last four years,” he said. “That’s part of our industry that excites me; that and in addition to that the fact that 90% of my competition is bankrupt and shoe salesmen somewhere.”
Sonnenblick was able to secure financing for the developments, though terms are not as rosy as they were a few years ago during the heady days of 2007. Owning the land free and clear provides some sway with the banks, he said.
Construction financing is also available—to a certain extent, Sonnenblick said. “I don’t (consider) 55% of construction costs a great loan,” he said.
Sonnenblick believes the hotel financing environment will loosen in 2012. By the third or fourth quarter of 2012, Sonnenblick said lenders should begin to see there is little threat to them if they open up to providing loans at higher loan-to-value rates.
CMBS problems in 2012
Still, it could well be the financing market that hurts the hotel sector’s attempts at a comeback. The US$25 billion in commercial, mortgage-backed securities that mature next year might present a big problem for the industry, he said.
The industry will not be able to refinance that big a chunk of CMBS debt. And instead of worrying about their properties, hoteliers will begin worrying about their properties’ debt.
Not focusing on their hotels will cause operating performance at hotels to suffer, Sonnenblick said. “It takes your eyes off the ball.”