Posted on: Friday, May 3, 2002

Another Kohala hotel on sale block

By Andrew Gomes
Advertiser Staff Writer

On the heels of the sale this week of one jewel on the Big Island's "gold coast" of luxury hotels, the Los Angeles-based owner of The Orchid at Mauna Lani is exploring options to recapitalize itself, including selling its largest asset in Hawai'i, the Orchid.

Colony Capital Inc. has hired New York-based real estate investment banking firm Eastdil to explore options, which also include finding a partner to buy out part of Colony's equity in the hotel.

Owen Blicksilver, a Colony spokesman, said a variety of interest has been expressed in the Orchid in response to Eastdil's effort, but no decision has been made by Colony, which he said is awaiting recommendations from Eastdil.

Blicksilver added that Colony, a multi-fund private investment firm, may not do anything with the Orchid, or may simply refinance the property.

Some real estate and hospitality analysts in Hawai'i and on the Mainland have said they believe Colony is seriously considering selling the Orchid for as much as $140 million.

If sold, the 539-room hotel would be the second recent transaction among the better-performing luxury hotels on the Big Island's Kohala Coast. On Wednesday, an investment partnership sold its stake in the Hilton Waikoloa Village to minority partner and hotel operator Hilton Hotels Corp., which paid $155 million for the 87 percent of the property it didn't already own.

Keith Vieira, Hawai'i senior vice president of operations for Starwood Hotels & Resorts — manager of the Orchid and W properties — said Starwood has talked with Colony about buying or investing in the Orchid.

"We're in discussions with them, but they haven't decided what they want to do," he said. "If they have a firm interest in selling, we naturally would have some interest in buying. They've been a good partner, and we'll try to do whatever's best for them and the employees of the hotel."

Colony, a firm founded in 1991 that has invested about $8 billion for major institutional investors, was one of the early purchasers of Hawai'i real estate when the boom of late 1980s Japanese investment started to go bust with distressed property sales in the mid-'90s.

The company bought the hotel then known as the Ritz-Carlton Mauna Lani in 1995 for $75 million — a 57 percent discount from the $175 million Ritz-Carlton Hotels and its Japanese partners ONKD Inc. spent to develop the property.

Colony also owns the upscale W Hotel in Waikiki and a residential property at the Mauna Lani Resort called Pauoa Beach.

In the mid-'90s, Colony had a small stake in the Waikoloa Village. At the time, Colony, in whole or part, owned more hotel rooms than any other single investor on the Kohala Coast — roughly 1,800 luxury hotel rooms between the Mauna Lani and Hilton Waikoloa hotels.

Today, Colony is looking at acquiring other assets in Hawai'i, especially on the Big Island, Blicksilver said, but at the same time is looking to reduce its equity in the Orchid.

Douglas Pothul, senior vice president with local commercial real estate firm Colliers Monroe Friedlander, said that although it has been more of a buyers' market for Hawai'i hotels recently, it's still a good time to sell because of few luxury hotels on the market and lots of capital available from recent dramatic rises in hotel company stock prices.

"There is billions of dollars of equity poised to acquire better hotel assets," he said. "After this soon-to-occur spending spree is over, finding hotel buyers will be extremely difficult for quite some time."

Pothul said the Orchid's suggested $140 million price isn't bad based on a price per room of $260,000, though revenue per room is a better measure of a hotel's value.

The Orchid's former sister property, the 548-room Ritz-Carlton Kapalua on Maui, was bought last year for $144 million by a joint venture between Marriott International Inc. and investment firm Blackacre Capital Management LLC.

Joseph Toy, a local hospitality consultant who tracks hotel occupancy and room rates, said the Orchid has been among the better-performing properties. Average occupancy for Big Island hotels was 66.9 percent in the first quarter, compared with 78.2 percent for the same quarter a year ago. Kohala Coast hotels, he added, generally have slightly higher occupancy than the island's average.