Luxury hospitality real estate investors Ohana Real Estate Investors has sold the newly constructed, 130-room Montage Healdsburg in California to Sunstone Hotel Investors for US$265 million. Ohana will retain ownership of the residential parcels within the property and has already begun constructing homes and selling custom homesites that will be affiliated with the resort.
This transaction, advised by global law firm Dentons, marks the second time Ohana has sold a hotel property for more than US$2 million per key. The first sale occurred in December 2019 when Ohana sold Montage Beverly Hills for US$2.1 million per key, the highest price-per-key hotel sale in the U.S. at the time.
The acquisition by Sunstone was funded from cash on hand and through the direct issuance of US$66 million of perpetual preferred equity (the “Series G Preferred Equity”) to the seller, affiliates of Ohana Real Estate Investors. Upon stabilization, the Sunstone expects the resort to generate a 6% to 7% net operating income yield on total invested capital.
“Montage Healdsburg is a spectacular resort, ideally located in one of the most sought-after and highest-rated leisure destinations in the U.S.,” said John Arabia, president and CEO of Sunstone. “The resort, which took over 15 years to develop, is a perfect example of Long-Term Relevant Real Estate (LTRR) and its addition elevates the overall quality and growth prospects of our portfolio. Leveraging our industry relationships, we acquired the resort on an off-market basis and at a discount to what it would cost to develop today.”
Arabia added, “The acquisition is consistent with our stated tactics of acquiring LTRR in the early phases of a cyclical recovery and putting to work a portion of our excess liquidity, all while maintaining financial flexibility and access to capital to fund incremental external growth. Additionally, we are funding 25% of the transaction with attractively structured perpetual preferred equity that is being issued directly to the Seller that aligns our interests and gives us additional optionality.”
James Cole, head of Asset Management at Ohana, said, “This sale reflects the strong interest from investors in best-in-class, leisure-oriented resorts as the hotel industry begins to recover from the effects of the COVID-19 pandemic. The City of Healdsburg and Montage have been incredible partners throughout the development process of this truly unique resort, and we look forward to continuing to collaborate with them. Sunstone is a well-respected, institutional owner of hotels and we look forward to their ownership of the hotel as we complete the build out of the 68 private residential units.”
Ohana has been among the most active investors in the hotel sector since the onset of the pandemic, investing in a range of luxury hotel properties and related investments. “We believe the high-end hotel sector benefits from attractive long-term supply and demand fundamentals, and we intend to be a net buyer of hotel properties in the coming year as we continue to see compelling investment opportunities,” said Franco Famularo, chief investment officer of Ohana.