|By Adolfo Pesquera, San Antonio Express-News|
Knight Ridder/Tribune Business News
Aug. 27, 2004 - As savvy as Drake Leddy is at making hotel projects happen, he knows all too well that his present fortunes came in a big way by the grace of Lady Luck.
There are moments when near-disaster strikes so quickly that we, obliviously shuffling along, are left dazed and shocked, yet unharmed, and exclaiming in hoarse whispers, "Jeez, that was close!"
Leddy, a stocky, middle-aged and unassuming developer who dresses casual to work, is today crafting million-dollar deals all over the United States. He's made a fortune taking advantage of the misfortune of others.
Yet, it could easily have been a case of "what goes around comes around" when on Sept. 11, 2001, this mogul whose livelihood is so closely tied to the hospitality industry found himself neck-deep in a new venture that desperately needed a healthy economy to stay afloat.
But if timing is everything in comedy, this can be as true in business.
"In the winter of 2000, I was just blowing and going," Leddy recalled. "That was the best of the best times."
Leddy's financial adviser looked at the projects Leddy wanted to do and drew another conclusion -- he had more deals cooking than he had liquidity. It was time to consider syndicating his real estate company to recapitalize.
The Leddy Co., as the business was known, was reshuffled. Since Leddy started the company in 1989, he had been doing any kind of commercial project that he thought he could make work -- office buildings, retail centers, whatever.
San Antonio-based H.B. Zachry Co., now Zachry Construction Corp., and Metro National Corp., a huge Houston-based developer, agreed to be partners in a new company. Each would hold a 20 percent stake on one condition: Leddy had to put all his hotel-related assets in the new company and devote himself full time to that company.
It became Leddy Ventures Inc. The Leddy Co. still exists, but only as an administrative property management business for Leddy's non-hotel assets.
"The deal occurred Aug. 15, 2001," Leddy said. "Less than a month later, the terrorists threw the hospitality industry into a tailspin. But I had a fresh pile of (gun) powder. That's called, 'Better to be lucky than good.'"
Among the properties Leddy was trying to save was a Doubletree hotel in Austin he had just opened in February 2001. It was about to hit its stride in September and desperately needed bookings.
"Through the end of 2002, we were just keeping our heads above water," he said.
Leddy's interest in hotel projects came from his days as president of USAA Real Estate, an investment division of the insurance company. He did a variety of institutional deals and benefited in experience from the fact that USAA was occasionally willing to start developments.
Most institutional investors prefer ready-made properties that provide an immediate revenue stream into their portfolio.
Leddy was with USAA when it acquired the land for Shops at La Cantera. Although the project is only now under construction, the insurance giant's plans for a major retail center at Interstate 10 and Loop 1604 go back to the late 1980s.
Leddy left USAA Real Estate because he wanted to take advantage of the savings and loan debacle that had depressed the values of so much of Texas' real estate.
It seemed a great opportunity to him to buy low and on speculation that he could profit from the glut of distressed properties.
"That type of speculation is not very institutional," Leddy said.
He found a partner in Andy Johnson, and through their company, L.J. Partners, they bid on a Resolution Trust Corp. contract to be the liquidation contractors on two of Dallas' largest savings and loan institutions, the Murray and the Metropolitan.
Over the next several years, they disposed of $1.2 billion in real estate assets.
Because Leddy found himself on a statewide stage early in his career, he rarely did deals in Bexar County. An early exception was the Retama Park racetrack, which he developed for the Straus brothers.He also picked up the 525-acre Retama Polo Fields at a failed bank auction for $1.2 million and held it as an investment. He parceled it out over the years and only recently sold the last section to Dallas homebuilder Centex.
His first hotel deal since leaving USAA Real Estate happened in 1993 when a pair of Houston developers showed up in need of an investor.
"They had some downtown San Antonio land under contract, couldn't get their financing and were about to lose their earnest money," he said. "I underwrote it, they got a finder's fee." That was how the Hampton Inn on Bowie Street was created. Word spread on how well Leddy was able to get the project done, and he began getting offers across Texas.
James Browning of Browning Construction was Leddy's contractor on the Hampton, as well as on a Doubletree in Austin.
"We always enjoyed working with him," Browning said. "He's very energetic. He comes to work real early. He stays on top of things." A great advantage Leddy has, Browning noted, is that he not only develops a hotel, but owns a percentage of it and manages the property after it opens through a Leddy Ventures subsidiary, Presidian Destinations.
As the hospitality industry recovered from 9-11, Leddy Ventures went coast to coast. Leddy built a Hilton Garden Inn near Santa Barbara, Calif., for Invest West/Pacifica Hotel Co. He found other partners for projects in San Diego, Kansas City, New York City and Las Vegas.
His most ambitious project came last year when he restored the historic Humble Oil Building in downtown Houston. National firm Kimberly-Clarke had been working unsuccessfully with a New Orleans developer to turn it into Humble Tower -- a mixed project with two hotels, 86 corporate apartments and street-level retail.
"When we came in, it was half-done," Leddy said. Completing the $70 million dollar conversion consumed Leddy through much of 2003.
"Some of my favorite deals arise from situations where I came in and fixed somebody else's concept," he said.
Leddy's latest project is another revival of a distressed property that, upon completion, will be a major attraction at the heart of Biloxi's 28-mile "Miracle Strip" of sandy beach in Mississippi.
Mike Boudreaux, head of Gulf Coast Investment Developers and Leddy's partner in the project, said Leddy bought a 10-acre site from St. Louis-based President Casinos Inc.
President Casinos owns a casino and two hotels that are next to Leddy's land, upon which stands a hotel that has seen better days. Since gaming came to Mississippi's coast, 13 casinos have opened, Boudreaux said, and Leddy is positioning himself to be a major stakeholder.
"We intend to build three towers, each 175 feet (high), each with approximately 120 units," Boudreaux said. "There are plans for a lazy river and water features all through the property." The Ocean Club Resort at Biloxi, as it will be called, will be run as "condotels," Boudreaux explained. Buyers could live in them but would have the right to put the units into a rental pool that would be marketed to vacationers.
"It is probably going to be the most exciting development on the Gulf Coast," he said, "and there are some very nice ones here already.
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