Hawaii’s hot potato

The Grand Wailea, a Waldorf Astoria-branded hotel on the Hawaiian island of Maui, may want to check into its own award-winning spa for whiplash treatment after its rollercoaster history.

Billionaire Japanese developer Takeshi Sekiguchi built the 780-unit resort in 1991 at a cost of about $1 million per room, reportedly a higher price tag than the business could sustain.

Seven years later, it was sold to KSL Capital Partners, the Denver-based private equity firm focusing on travel and leisure assets, for $280 million, according to data provider Real Capital Analytics.

Then, in 2004, real estate investment trust CNL Hotels & Resorts purchased a portfolio from KSL, including the Grand Wailea, for $1.37 billion. It allocated $446 million for the resort specifically. Three years later, Ashford Hospitality Trust acquired a portfolio of 50 hotels from CNL, simultaneously flipping a portfolio of eight luxury hotels to Morgan Stanley Real Estate Investing, including the Grand Wailea, for $3.1 billion. Months later, the California State Teachers’ Retirement System paid Morgan Stanley $300 million for a minority stake in a joint venture to manage the eight resorts – just before the global financial crisis struck.

Underlying five of the properties, including the Grand Wailea, was a $1 billion single-borrower commercial mortgage-backed securities bond linked to properties performing poorly in the face of the GFC. That loan was transferred to special servicing while MSREI attempted to change terms to continue servicing the debt.

MSREI could not hold onto the portfolio, however, and the holders of the subordinated debt – including John Paulson’s hedge fund and the since-liquidated Winthrop Realty Trust – took control of the five properties, extinguishing $200 million of corporate debt and converting $600 million into equity, per RCA. The deal left $1.5 billion in senior debt and $1 billion in mezzanine debt. In 2011, the lender group sought bankruptcy protection.

GIC checks out

In the US Bankruptcy Court, creditors worked out a plan for the portfolio, which included selling one of the five hotels to President Donald Trump’s real estate group. Singaporean sovereign wealth fund GIC, which held about $360 million of the portfolio’s mezzanine debt, proposed an auction for the remaining four properties and foreclosed in 2013 after agreeing to recapitalize the properties with an additional $1.1 billion of equity. The Grand Wailea was the most expensive, at $774 million. Since then, GIC invested capital to restore the properties’ condition following years of limited investment while under lender control.

Once past the hotel’s financial troubles, GIC agreed to sell the Grand Wailea to Blackstone for $1.1 billion earlier this month. The transaction marks the second-largest single-asset hotel transaction, behind only New York’s Waldorf Astoria, which sold to China’s Anbang Insurance in 2014 for $1.95 billion.

Blackstone, which declined to comment, knows Hawaii well. Its first purchase was the Hyatt Maui in 2003, and the firm has since invested in deals worth over $4 billion. Its current holdings include the Turtle Bay Resort on Oahu and the Grand Islander Timeshare in Hilton Hawaiian Village.

With its latest buy, Blackstone oversees a property that includes multiple pools and waterslides, seven bars and restaurants and 50,000 square feet of meeting space, the largest group space in Maui. PERE understands Blackstone made the purchase from its global opportunistic fund, Blackstone Real Estate Partners VIII. The $16 billion fund, which closed in October 2015, generated an 18 percent net internal rate of return as of December 31, according to the firm. Like the building’s previous owners, the firm also sees significant opportunity to invest capital to improve amenities and product offerings.

Of course, held in a limited-life fund, Blackstone will likely not be the resort’s last owner. If the walls of the Grand Wailea could talk, they might be asking for their ownership story to relax with a poolside tiki drink. Whether it gets that drink depends on who buys from Blackstone.