Miami Beach’s 409-Room Royal Palm Hotel Trades for $126.1M in Foreclosure Auction
- Aug 18, 2010
August 18, 2010
By Barbra Murray, Contributing Editor
The 409-room Royal Palm Resort Hotel in Miami Beach, Fla., developed by R. Donahue Peebles of the Coral Gables, Fla.-based Peebles Corporation in 2002 and placed into receivership in 2009, has just come under new ownership. An entity of Aliso Viejo, Calif.-based Sunstone Hotel Investors Inc. snapped up the eight-year-old property for $126.1 million in an online foreclosure auction held by the Miami-Dade Clerk of Courts.
Sunstone acquired the Royal Palm, prominently located in the middle of South Beach, unencumbered; although, the company had previously acquired a portion of the outstanding debt on the property at a discount in a separate transaction, which, according to the hotel REIT, leaves an economic gross acquisition price of approximately $117 million. Sunstone is planning to kick off a comprehensive renovation of the hotel immediately.
Commercial real estate services firm Jones Lang LaSalle, hired by the court-appointed receiver to market the hotel, had no trouble luring eager investors to the auction. “There was a tremendous amount of interest,” Gregory Rumpel, executive vice president with JLL Hotels, told CPE. “The auction was scheduled to take place in May, but here was a delay and that created an even greater amount of interest.”
Miami hotels, the Royal Palm included, did not escape the ravages of the global economic crisis, but many believe the future for both the Miami hotel market and the Royal Palm is bright. “Miami is truly the only warm climate in the U.S.; come January this is the only warm place,” he said. “So as we get a globalized base of business–which has been increasing over the last 10 years–it’s becoming a 12-month destination. It’s not an international gateway to the U.S. but it is one of the most dynamic cities. It’s a leisure market.”
As for the Royal Palm, the property has had its problems, but Rumpel believes it has incredible potential. Although only eight-years-old, the hotel has a storied history that did nothing to advance its success. Peebles sold a nearly 90 percent ownership stake in the property in 2005 for approximately $127.5 million. A partial condo conversion plan had been in the works before Peebles regained control of the asset in 2009. The ownership, before and after the change, had been dogged by financial and legal issues. But with Sunstone now onboard, Rumpel believes the hotel will be able to achieve its full potential. “The asset has had a sordid past due to ownership issues, but now Sunstone has acquired it and the hotel is finally under institutional quality ownership, and that is a very good thing for the hotel and for South Beach.”
The final price tag on the Royal Palm, though not shockingly low, was a good deal, he added. “Everyone has been waiting for super-discount deals and they just won’t happen. Many of the investors were looking to buy the Royal Palm at a price that never existed–and never will. They weren’t in step with the fundamentals of beach real estate; there’s only a finite number of properties on South Beach. And at the end of the day, if you buy fundamentally outstanding real estate, you’ll do well over time with the asset. Sunstone paid a strong number given current market conditions, but in three to five years, it will be considered a good investment. So it’s a tremendous buy for Sunstone.”