Negotiations underway to sell Condado Duo complex
Negotiations for the sale of La Concha and the Vanderbilt hotels in Condado to a leading real estate investment group are reportedly underway and could culminate within the next two months, News Is My Business has learned.
If it goes through, the sale will pave the way for an upgrade of both facilities, targeting such specific areas as the pool and hotel rooms. The cost of the renovation is estimated at $50 million.
Meanwhile, an industry source said that failure to sell the properties could lead to the shuttering of the hotel complex, due to the high amount of unpaid debts hanging over the project, and the consequent loss of 560 jobs.
Such an outcome would be a massive blow to the local tourism sector, which can ill afford the loss of any hotel rooms, not to mention the impact of so many lost jobs on Puerto Rico’s frail economy.
Although NIMB was unable to confirm the negotiations with the parties involved, the potential buyer appears to be Caribbean Property Group, one of the leading real estate investors, developer, and asset managers in the Caribbean, Central America, and South America. CPG’s hotel properties in Puerto Rico include the Ritz Carlton in Isla Verde and the Ritz Reserve in Dorado.
CPG has offered to buy the two properties for $160 million, including renovations, an amount the source said is a very good deal for the buyer as “they are getting 50 cents on the dollar.”
However, whether the transaction is good for the Puerto Rico government and the private banking sector that helped bankroll the complex since its beginnings nearly 10 years ago remains to be seen. At least $400 million was invested in the project.
Close to $300 million went into the construction and development of the hotel complex, the bulk of which came from a construction loan that International Hospitality Enterprise, developers and operators of the property, obtained from the Government Development Bank.
The government lent $166 million and private financing took care of the balance, or $111 million.
The government loan came due last September and has not been repaid yet, according to GDB spokesperson Betsy Nazario. The Puerto Rico Tourism Development Fund, a GDB subsidiary that is currently carrying $221 million in losses, guarantees it.
Condo towers remain empty
The Condado Duo complex also featured the addition of three condo towers, built alongside the hotels at a cost of $100 million.
The idea was to sell 416 condo units to the public and arrange to use those apartments as extra hotel rooms when their owners were out of town. The units would be sold for prices between $200,000 and $400,000 and pay for the construction cost.
The source said that although pre-sales of the units went well, R&G, the bank that financed the construction phase, persuaded management to back off from the sale of the towers to ensure that the complex could be sold at a future date as “one piece.”
As a result, $5 million in deposits were returned to their owners.
The government and Scotiabank, which acquired R&G’s assets in 2011, are not alone in losing money in the venture, according to the source. He said the limited partners in the project lost their $23 million share and Hugh Andrews, founder and chief executive officer of IHE, also lost personal money he invested in the enterprise.
For Andrews, a veteran hotelier, reopening these two legendary hotels, shuttered in 1997 as part of the Rosselló administration’s bid to privatize government-owned hotel properties, has been a passionate personal quest.
“Everyone lost their shirts,” the source said.
CPG came into the picture in June, on the heels of another buyer that apparently was serious about buying the property but the source said, “Unfortunately, it didn’t work out.”
Negotiations between CPG and the owners of the Condado Duo, namely Scotiabank and the Puerto Rico government, “look very positive,” said the source, adding that he could not think of any roadblocks that could scuttle the sale.
Requests for confirmation of the negotiations elicited a “no comment” from the spokespersons for Scotiabank and La Concha. NIMB was unable to reach anyone at CPG’s offices in New York City.
In a written statement, GDB’s Nazario said, “GDB has been dealing with the matter of the Condado Duo with urgency and has evaluated several proposals with the objective of maximizing the value of its collateral and achieving the completion of the Vanderbilt towers. Negotiations continue with various interested parties and we hope to be able to resolve this situation in a satisfactory fashion.”
Due diligence underway
According to the source, “everyone wants this to happen.”
He said the negotiation process is at the stage of due diligence with CPG seeking other private investors to come in on the deal.
“When you go to these big ventures, you always bring in extra help,” the source said.
As part of its own due diligence, IHE has been working on the renovation plan for the hotel which, if the sale goes through, would begin promptly.
“Because (the complex) was designed almost nine years ago, all these areas have to be updated,” the source said.
The Vanderbilt reopened last year in October after being shuttered for 16 years but is operating only half-way: the meeting rooms and food and beverage establishments are open for business but the facility’s 322 guest rooms are not.
That’s because the rooms in the two towers were tied to a “resolution process” that followed when Scotiabank took over the assets of the failed R&G bank. Management had hoped it would be able to open all the rooms by spring this year but that was not the case.
Founded in 1998, CPG has acquired, developed or redeveloped approximately $2.2 billion of real estate assets in the Caribbean and Central America. It has offices in New York City, West Palm Beach and San Juan.
According to information posted on its website, CPG is “the operating partner of the Caribbean Real Estate Opportunity Fund 2005, L.P., a $472 million real estate fund closed in 2006 and sponsored by CPG, Whitehall (a Goldman Sachs affiliate), and Perry Capital. The Caribbean Fund is the only such pool of capital with a sole concentration on Central America and the Caribbean region.”