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JMI Realty Acquires the Aston Kauai Beach for $38 million;
Planning a $10 million Renovation and Re-branding

By Allison Schaefers, The Honolulu Star-AdvertiserMcClatchy-Tribune Regional News

October 22, 2010 --JMI Realty, a mainland real estate investment and development firm, bought the Aston Kauai Beach at Makaiwa for about $38 million Wednesday, according to sources familiar with the transaction.

The hotel changed hands for significantly less than the $69 million or more that the sellers paid for the property in 2006 during Hawaii's most recent tourism boom. After the market turned, the sellers, a joint venture between Gaylord Entertainment Co. and RREEF Global Opportunities Fund II LLC, a division of Deutsche Bank, and lenders -- a commercial mortgage-backed securities fund -- were forced to sell at rock-bottom levels to avoid a foreclosure auction.

The offering enticed JMI Realty and its Dallas-based partner, Behringer Harvard, to make their first entry into Hawaii and into the resort hotel market, said Greg Clay, chief investment officer of JMI Realty. JMI Realty has offices in Texas and California.

"As you know, the entire industry lived through its most challenging year ever in 2009, and it created opportunities on the buy side around the country," Clay said. "No buying opportunities have been as great as they are in Hawaii right now because it suffered more than others in 2009 and during the first part of 2010."

Clay said he and other investors, who plan to spend upward of $10 million restoring and re-branding the 311-room hotel, are bullish on Hawaii and on their new resort, which sits on 10 beachfront acres amid a century-old coconut grove.

"We are optimistic that the market is coming back," Clay said. "We've already seen signs of that, so we think it's the right time to take advantage of the opportunity to invest in Kauai."

JMI Realty, established in 1992, is owned in part by John Moores, owner of the San Diego Padres Major League Baseball team. The company, which redeveloped San Diego's Ballpark District, manages a real estate investment portfolio valued at about $600 million, according to its website. Its hotel collection is mostly limited to urban sites throughout the Pacific Northwest, California and Texas.

The new owners have retained Davidson Hotels to manage the property and expect to announce that it will become a Marriott Courtyard in the near future, Clay said.

Investors plan to address deferred maintenance at the property as well as overhaul the hotel's food and beverage outlets, he said. Few changes will be made among the 112-member staff, Clay said.

"We really like the staff, and many of them have many years at the hotel," he said.

Joseph Toy, president and chief executive officer of the hotel consultancy Hospitality Advisors, said the ownership change will be positive for Hawaii and for hotel workers, who will have more security.

"It brings needed reinvestment and stability to the property," said Toy, who has been overseeing hotel operations since June 2009 after the seller defaulted on a $43.2 million loan and Toy became the court-appointed receiver.

More than 20 Hawaii properties have been in some stage of distress in the past few years, with owners unable to pay their mortgages, refinance or sell in a down economy, he said.

The more recent hotel purchases used loans that were packaged and resold to investors as commercial mortgage-backed securities. More hotel owners are expected to default as short-term mortgages expire in the next few years, Toy said.

JMI Realty is eyeing some of these other properties, Clay said.

"I think we are now at a point where the sellers understand that there has been a big decrease in value and the buyers understand that the new price points makes sense," he said.

More ownership changes will have to occur before Hawaii's hospitality sector recovers, Toy said.

"New capital helps improve the product and stimulate demand," he said.


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