NEWPORT BEACH, Calif. — For years, Eagle Four Partners CEO and partner Kory Kramer would drive by the Newport Beach Marriott Hotel & Spa and thought how much he’d like to own it one day.
That day came last week.
Despite the global coronavirus pandemic and its effect on the hotel industry, a joint venture between Eagle Four Partners and Lyon Living acquired the 532-room Newport Beach Marriott at 900 Newport Center Drive from Host Hotels and Resorts in an off-market, $200 million deal.
“I looked at this hotel every day,” Eagle Four CEO and Partner Kory Kramer said to Spectrum News 1. “I always thought it would be a great opportunity to own. Of course, the seller didn’t have it on their radar to sell but we put an offer together that works for them and from a logical buyer, since we own the [Newport Beach] Country Club next door.”
The acquisition comes as the hotel industry in Orange County — and across the nation — struggles due to the coronavirus pandemic and drop in demand for tourism, live meetings, and conventions. A combination of travel restrictions internationally, shelter in place orders throughout California, and coronavirus-cautious companies and people sunk the demand for hotels.
Before the pandemic, Newport Beach averaged an 80% occupancy rate. By the summer, a couple of hotels had closed, and those that remained open, the occupancy rate fell to the low 40% range, Visit Newport Beach President and CEO Gary Sherwin told the Newport Beach City Council in July.
“What we are going through with our hospitality industry nationally, and perfectly here in Newport Beach, is nothing short of absolute devastation in terms of our business climate,” Sherwin said.
Though his own hotels and assets have also struggled amid the pandemic (Eagle Four owns several hotels in Orange County, Hawaii, Nevada, and Arizona), Kramer said he and his company didn’t hesitate when it came time to buy a Class A luxury hotel product — and at a steep discount.
“It’s during times like these that opportunities arise,” Kramer said. “We are local owners and we believe in our hometown of Newport Beach. We felt that this was the right time to do something like this. It takes courage but that’s how we operate our business: take advantage of opportunities.”
Atlas Hospitality President and CEO Alan Reay said the joint venture of Eagle Four and Lyon got a great deal, especially for a luxury hotel product in a great location. Reay specializes in the sale of hotels in the state.
Last year, the 400-room Monarch Beach Resort in Dana Point sold for $497 million or about $1.1 million a room. Last month, the L'ermitage in Beverly Hills sold for $100M or a little over $800,000 a room, Reay said.
“The Marriott Newport Beach sold at just over $400,000 per room, a substantial discount to replacement cost and well below other recent sales comps for Southern California,” Reay said.
The acquisition of the Marriott Newport Beach is the highest sale price of a hotel in the state this year.
“It shows that for well-located assets, there is still strong buyer demand,” Reay said.
Reay does not expect this type of unloading of hotels at a steep discount due to the coronavirus to be a trend in the hotel industry. Though many hoteliers are grappling with how to stay afloat, and some on the brink of bankruptcy, most owners may take a wait and see approach.
“I think with this morning's announcement from Pfizer on a possible vaccination, I think we are going to see a lot more potential hotel seller's take a wait and see position,” Reay said. “I do not see a lot of hotels coming to market with distressed pricing.”
Host Hotels and Resorts President and CEO James Risoleo said unloading the Newport Beach Marriott along with a 29-acre plot of land in Phoenix allows the company to increase its cash flow during an uncertain time. Host Hotels & Resorts owns 79 hotels nationwide, four of which remain closed due to the pandemic. In September, the company averaged about a 20% occupancy rate across its hotels.
"We are pleased to capitalize on these opportunistic sales at attractive prices that enhance our liquidity and reduce our near-term capital spending requirements," Risoleo said in the company's third-quarter report.
For Kramer, the acquisition of the Newport Beach Marriott is a great way to invest in the future of Newport Beach. The property is centrally located right across from the Fashion Island mall and surrounded by office buildings.
With the acquisition, Kramer said, they are also planning a comprehensive renovation of the hotel. They plan to add more public space, renovate the guest rooms and other exterior enhancements. He did not disclose how much they are going to spend.
“Obviously, hotels have been hit hard. These are challenging times,” Kramer said. “But there are two types of people: builders and destroyers. We look at ourselves in the builder camp.”