KSL buys Miami’s Royal Palm for $130m

Ex-KKR affiliate KSL Capital Partners has announced the purchase of an historic hotel on Miami’s South Beach area. The announcement comes one week after it emerged the leisure-focused firm had raised $1.5 billion for its third opportunity investment fund.

KSL Capital Partners, the leisure-focused private equity firm with offices in Denver and New York, has bought The Royal Palm Hotel in Miami’s South Beach district from an affiliate company of Sunstone Hotel Investors, the California-based hotel investment REIT for $130 million.

KSL said in an announcement following the purchase of the 2-acre hotel between 15th and 16th streets on Collins Avenue, that it intended to ‘completely renovate’ the historic hotel, increase its occupancy capability to 409 rooms and rebrand it as the James Royal Palm.

Under KSL’s plans The Denihan Hospitality Group will remain as the hotel’s managers. The plans, which will preserve the hotel’s original art deco theme, are expected to be completed in late 2012.

The announcement of the purchase comes one week after it held [just to check it was 1 week after closing and not one week after we wrote about it] a $1.5 billion closing for its third investment fund. According to a person familiar with situation and US Securities and Exchange Commission filings, the fund has a hard cap of $2 billion. A final closing is anticipated to happen by the summer, the person said.

KSL, which invests in travel and leisure businesses, employs a buyout strategy, making operational improvements to operating companies rather than just buying property.

The firm, once an affiliate business of New York-based buyout titan Kohlberg Kravis Roberts, was established in 2005 by managing directors Michael Shannon and Eric Resnick and raised about $1.1 billion for its prior fund in 2006 with commitments from the likes of the Canada Pension Plan Investment Board and the Oregon Public Employees’ Retirement System.

The firm collected an additional $375 million in a supplemental vehicle to Fund II to bolster its investment power. KSL considers its first fund to be KSL Recreation, which was a portfolio company of KKR.

Fund II was producing a 1.14x multiple and a net internal rate of return of 9.7 percent as of 30 September, according to a market source. That is considered first quartile for real estate funds of a 2006 vintage, according to a market source.

Last year, KSL acquired Squaw Valley Development, which operates the 4,000-acre Lake Tahoe ski resort, Squaw Valley USA, along with the resort’s village and related real estate holdings. The resort was the site of the 1960 Olympic Winter Games.