AREA assumes ownership of ex-MSREF hotel

The New York-based real estate firm has taken over the Makena Beach and Golf Resort in a joint venture with Trinity Investments and Stanford Carr, after senior lenders foreclosed on the 1,800-acre asset last year.

A joint venture led by AREA Property Partners has assumed ownership of the Makena Beach resort in Hawaii after senior lenders successfully foreclosed on the property from Morgan Stanley Real Estate Investing.

In June, Morgan Stanley Real Estate Fund V and Maui-based developer the Dowling Company lost control of the Makena Beach and Golf Resort when the 1,800-acre property was sold at a foreclosure auction for an estimated $95 million to senior lenders.

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As a subordinated bond holder in the first mortgage trust, AREA was part of the controlling class in the foreclosure action after existing mezzanine debt holders failed to initiate foreclosure.

The firm worked with lenders to help stablise and rebrand the resort, which was not covering its debt service, and bring in new management. In taking over the resort, AREA converted its ownership interest in Makena to an equity stake, assuming the debt senior to its own position and injecting additional capital to help turn the asset around.

Makena Beach was acquired by MSREF and Dowling for $575 million in 2007, financing the deal with a $192.5 million first mortgage, around $227.5 million of mezzanine debt and investing an estimated $250 million of equity, according to previous Bloomberg reports.

AREA invested in the deal at the time of Makena’s securitisation in 2007, through the firm’s $932 million debt fund, AREA Real Estate Finance Corporation (AREFIN). As part of assuming ownership of Makena, AREA and its joint venture partners have extended debt secured against the property for a further five years and will make some principal pay downs. “This is a unique property as it’s literally the last destination resort on the island of Maui,” said AREA partner Bradford Wildauer.

The 1,800-acre Makena resort has 310 rooms, two 18-hole golf courses and around 1,200 acres of vacant land tipped for future development.

The JV is expected to work through various entitlement issues relating to the developable land, which could comprise residential single-family and multifamily development as well as some commercial, with plans to introduce a master plan for the resort. The hotel and resort would also be “revitalised”, Wildauer said, adding: “This is about how best to position the resort for the next phase of its development.”

Last December, MSREF handed back the keys on five San Francisco offices to AREA, after the firm provided mezzanine financing for the $2.65 billion deal.

According to real estate data provider, Real Capital Analytics, AREA owned the two most junior pieces of the fourth $278 million tranche. Morgan Stanley’s MSREF V fund bought the properties as part of a nine-office portfolio from The Blackstone Group in April 2007. The offices were originally part of the Equity Office Properties portfolio acquired by Blackstone just a few months earlier that year.