KSL looks to rebuild portfolio, banking on brand names

Hotel & Motel Management, Nov 1, 2004 by Jeff Higley

POENIX -- Fewer than 10 months after agreeing to a $2-billion sale of six trophy assets to CNL Hotels & Resorts, Mike Shannon is ready to rebuild KSL Recreation Corp.'s portfolio.

Shannon, president and c.e.o. of KSL, said during a break at The Lodging Conference that the company is looking for opportunities to own real-estate and manage properties after harvesting its previous portfolio. KSL sold the Grand Wailea Resort Hotel & Spa in Hawaii, the La Quinta Resort & Club in California, the Arizona Biltmore Resort & Spa, the Doral Golf Resort & Spa in Florida, the Claremont Resort & Spa in California and the Lake Lanier Islands Resort in Georgia to CNL. As part of the sale, CNL assumed $794 million in long-term debt.

After the deal, Shannon retooled the company with the same management team. It owns La Costa Resort and Spa in Carlsbad, Calif., and has a joint-venture ownership of the Hotel del Coronado in San Diego with CNL Hospitality. It manages five other resorts.

"Our mission is to buy one-of-a-kind resorts, build campuses with leisure amenities and build them as the center of their neighborhood," Shannon said.

Traditionally, the company only has worked with Kohlberg Kravis Roberts & Co. for its financing needs; however, Shannon said the company will expand its reach for financing.

The sale earlier this year was predicated upon the financial climate.

"We were not ready to sell [the remaining] two," Shannon said. "Traditionally your capital partners like five- to seven-year windows, and we owned those six for 10 years. The time was right to sell."

As for growth, Shannon said there are 12 to 15 locations that are attractive to KSL in the United States. The company banks on the brand names of its properties.

"For every dollar of room revenue, KSL receives another dollar or two from incremental sales," he said. "That's more like 25 cents at resorts that don't have the name like the Arizona Biltmore or the Hotel del [Coronado]."

Shannon said the company will manage long-term deals and will co-invest in properties.

Because of the company's golf heritage, it is looking for opportunities in Mexico, Spain, the United Kingdom and Scotland, he said.

Representatives of other hotel-management and ownership companies were out in full force during the 10th anniversary of The Lodging Conference at The Arizona Biltmore. Many of the companies recently have secured a number of management contracts--and they're looking for more. Following is an overview of some of them.

Gemstone Resorts

Utah-based Gemstone announced it signed contracts to manage or expand its management duties at the 269-room Hotel Orrington in Evanston, Ill.; the Lake Lawn Resort in Wisconsin, which will be expanded to 779 rooms; and the 244-room Westward Look Resort in Tucson, Ariz.

Principal Mark VanHartesvelt said the company is looking for more contracts to add to the 17 it now has in its portfolio.

"In the next three or four years, we'll triple that," VanHartesvelt said. "That'll be all the growth we want."

Gemstone's forte is emphasizing food-and-beverage offerings at a hotel and providing unique guestroom opportunities.

"Experience is a great room," VanHartesvelt said. "If you don't have that, then you have mass commoditization."

The company specializes in managing upscale and luxury hotels and resorts as well as unique urban hotels.

Marshall Management

President Mike Marshall said the company recently added seven management contracts to bring to 15 the number of hotels it has added to its management portfolio in 2004.

Six of the seven hotels are owned by Independent Property Operators of America, and include four Comfort Suites properties in northern Indiana, a Hampton Inn & Suites in northern Indiana and a Comfort Inn in South Carolina.

The seventh property--a Holiday Inn Express under construction in Kent, Ohio--is owned by a private investment group and is expected to open in April.

Marshall said the hiring of Scott McMahon to seek out business development opportunities has worked out well.

"If you're going to sell your product, you have to get people out there," Marshall said. "We're really looking at markets with stability and having someone focusing on developing business in those markets."

Marshall said his company isn't specifically a turnaround specialist, but it can provide many solutions.

"Owners hire us because they need help," Marshall said. "There are a lot of nice hotels that need help, and we give them opportunities to overcome their issues."

The company will focus on the eastern half of the country, Marshall said.

A portfolio size between 35 and 40 hotels is where the company can be the most effective, he said.

"As we grow we're going to become more efficient because of economies of scale," Marshall said. "If I can't at least make them more money plus cover my fees, I'm not going to do the deal because no one is going to be happy."

Remington Hotel Corp.

Dallas-based Remington is looking to add to its portfolio. It has 46 hotels under property management, 37 ongoing project-management jobs and 28 hotels under asset management.