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Former Owner of San Diego's W Hotel, Sunstone Hotel Investors,
Wants to Acquire Manchester Grand Hyatt

By Lori Weisberg, The San Diego Union-Tribune
August 3, 2010

Orange County-based Sunstone Hotel Investors, which last year walked away from the tony W Hotel downtown, is now looking to take over the 1,625-room Manchester Grand Hyatt on San Diego’s bayfront.

Longtime hotel developer Doug Manchester, who currently owns the Grand Hyatt, had recently sought to broker a deal with Hyatt Hotels to give up his majority interest in exchange for a minority stake in the San Diego high-rise, along with two Hyatt properties in Atlanta and Chicago.

That deal apparently fell apart, according to a memo last month from the San Diego Unified Port District, which acts as the hotel’s landlord. The memo to the port commissioners indicated that Sunstone, a real estate investment trust with interests in 30 hotels nationwide, wants the port’s blessing for a change of ownership from Manchester to its company, located in Aliso Viejo.

Sunstone Hotel Investors, Inc. is interested in taking over control of the Manchester Grand Hyatt

In a letter sent to the port by Sunstone and Manchester Grand Resorts, Sunstone states that once the deal is consummated, it would have complete control over the Manchester Grand Hyatt, and in exchange, Manchester’s company would acquire “certain minority equity interests” in Sunstone.

The Port District board is expected to take up the request in September.

"Sunstone is not as big a company as Hyatt but they’re significant in the world of real estate investment trusts," said Karen Weymann, the port's director of real estate. "They definitely have high caliber assets and under the agreement we still have Hyatt as the manager of the hotel. The capitalization of Sunstone is greater than Manchester, and now’s a great time to be buying."

Manchester on Tuesday declined to comment, saying only that "the story will be told in September." In a previous interview, Manchester had said his decision to give up controlling interest in the Grand Hyatt was because he wanted to diversify his holdings.

Hyatt Hotels acknowledged on Tuesday that it was no longer in discussions with the Manchester Financial Group regarding a potential transaction.

"However, please note that Hyatt does have a long-term contract to manage Manchester Grand Hyatt San Diego, said spokeswoman Lori Alexander.

Sunstone's chief financial officer, Ken Cruse, said he could not comment on the matter.

Although Sunstone did opt to stop making loan payments on the W Hotel and has since been working to restructure its debt on other hotels it owns that have slid in value, the company has made it clear that it is interested in buying undervalued hotels that are regarded as more upscale.

Among its San Diego holdings are the Hilton Del Mar, Marriott Del Mar and Embassy Suites La Jolla.

It also owns the Courtyard by Marriott San Diego and Holiday Inn Express San Diego, both in Old Town, and the Holiday Inn in downtown San Diego, which are covered by a loan that Sunstone still is trying to modify.

“We have been working with the lender in an effort to restructure the non-recourse debt associated with three of our San Diego hotels for over a year, and we remain hopeful that we will reach a negotiated resolution with the lender,” Cruse said. “... However, at this point it appears we may end up deeding back these hotels in satisfaction of the debt.”

About Sunstone
A real estate investment trust with a portfolio of 30 mostly upscale and luxury properties comprising more than 11,300 rooms. Most are operated under well-recognized brands, including Hyatt, Marriott, Hilton, Starwood and Fairmont.

Value of total assets: $2.5 billion
Total liabilities: $1.5 billion

Hotels owned in San Diego: Hilton Del Mar, Marriott Del Mar and Embassy Suites La Jolla. Not included within its core portfolio of high-end hotels but still under Sunstone’s control are the Courtyard by Marriott San Diego and Holiday Inn Express San Diego, both in Old Town, and the Holiday Inn in downtown San Diego.
Purchased the W Hotel in 2006 for $96 million, but in 2009 decided to stop making loan payments after deciding the hotel was no longer worth the $65 million in debt it owed.


Lori Weisberg, Staff Writer
San Diego Union-Tribune
350 Camino de la Reina
San Diego, CA  92102

Also See: San Diego's Downtown W Hotel Now Owned by Lender / July 2010

During Downturn San Diego Hotel Owners Face a Delicate Balancing Act in Calculating When and How Much to Invest in Restorations / April 2010

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