|By Michael Kinsman, The San Diego Union-Tribune
Knight Ridder/Tribune Business News
Oct. 22, 2003 - The rich history of the Hotel del Coronado provides the resort a stately charm, but the partnership buying it is more interested in its future.
"We are definitely looking long-term," said Scott Dalecio, president of KSL Resorts, which is buying the hotel along with CNL Hospitality Properties for an undisclosed price. "We like unique destinations and that's what the Hotel del is."
Last week, Los Angeles-based Lowe Enterprises Investment Management announced it was selling the 115-year-old hotel that has hosted princes, presidents and other dignitaries through the years. The sale, which could be completed by the end of the year, marks the third time the resort has changed hands in seven years.
Although neither the seller nor the buyers are releasing the sale price, the industry newsletter Commercial Mortgage Alert has reported that KSL and CNL have been looking to borrow $290 million on the property, putting the total price in the neighborhood of $385 million.
That would equal the $330 million that Lowe paid for the property in 1997 plus the $55 million in renovations it has made since "Lowe paid absolutely top dollar when they bought the hotel," said Jerry Morrison, a La Jolla hotel industry analyst. "I think the company is very fortunate they were able to sell it without sustaining a loss."
Bob Rauch, director of San Diego State University's Center for Hospitality & Tourism Research, is convinced that the hotel deal revolves around the promise of a $125 million expansion. That expansion plan was initiated by Lowe shortly after it completed its acquisition.
"The deal probably doesn't work just on current numbers," Rauch said. "If there was no expansion, I don't think there would be a deal."
Dalecio said the partnership already has been reviewing the $125 million master plan expansion of the Hotel Del and has been discussing it with Coronado city officials.
"We want to move forward with this," Dalecio said. "We see this as a resort that can be even better."
Included in the plan are 213 rooms, a 10,000-square-foot spa expansion and some common area upgrades, such as the parking lot.
CNL, which would be the majority owner of the Hotel Del, owns 129 hotels in 37 states, including the Waikiki Marriott Beach Resort and the Hilton Tucson El Conquistador Golf & Tennis Resort. No CNL officials were available for comment on the transaction.
KSL, based in the desert community of La Quinta, owns eight resort properties and PGA West, a golf course and master-planned community near Palm Springs. It purchased La Costa Resort for $120 million in November 2001 from Sports Shinko, the Japanese company that paid $250 million to acquire the resort in 1987.
Since that time, the company has invested $65 million in upgrades and expansions to La Costa and is negotiating with the city of Carlsbad to build 173 one-, two- and three-bedroom villas that would nearly double the number of rooms at the 479-room resort.
"We didn't buy La Costa for what it was then or what it is today," Dalecio said. "We bought it for what it can be."
KSL also has a 126-unit boutique hotel in the works on a bluff-top in Encinitas. Preliminary work has started on beach access at the property, although Dalecio estimated completion of the hotel is probably two years away.
Rauch described KSL as an opportunistic buyer that traditionally buys undervalued properties and invests in them.
"KSL is one of the top operators of luxury resorts, but they are usually looking for deals where they see value in the development side of the deal and can drive room rates up," he said. "I think they must be thinking they can do this with the Hotel del Coronado, or they wouldn't have purchased it."
Late last week, the current management of the hotel, Destination Coronado Hotel, notified the hotel's union of the sale and indicated that all employees would be terminated at that time.
Dalecio did not say whether the KSL would seek to sever ties with Hotel Employees and Restaurant Employees Union Local 30, which represents about 700 workers there in a contract that extends into 2005. He did saythat his company was not a partner to the contract.
Jef Eatchel, secretary-treasurer of Local 30, said the union has survivedprevious ownership changes.
"Hotel del Coronado currently has the best jobs in the San Diego hospitality region," Eatchel said. "As far as HERE Local 30 is concerned, good union jobs are part of that hotel's history, and we know the workers will make sure it stays that way, whether this sale goes through or not."
More than 400 union workers at another KSL property, the La Costa Resort & Spa, have been working without a contract since April 2002.
KSL, which also owns such well-known resorts as the Doral Golf Resort & Spa in Miami, the Arizona Biltmore Resort & Spa in Phoenix and the La Quinta Resort & Club, has never before taken on an investment partner.
"We've been a 100 percent owner-operator to date because we want to control the management and ownership of a property," Dalecio said. "We came together with CNL because we saw this as kind of model where we could have a partner and manage a property under a long-term contract."
Story Filed By The UNION TRIBUNE, SAN DIEGO, CALIFORNIA
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(c) 2003, The San Diego Union-Tribune. Distributed by Knight Ridder/Tribune Business News.