- April 28, 2017
A Dallas-based real estate investment trust's estimated $171 million deal for the Ritz-Carlton Sarasota resort is a sign that investors believe the current tourism surge will continue into the foreseeable future, experts say.
Ashford Hospitality Prime Inc.'s purchase of the 266-room luxury hotel, affiliated private beach club property on Lido Key, 325-acre golf course and clubhouse near Lakewood Ranch and spa and members' club will represent the largest lodging-related sale in Sarasota history, and would rank among the top resort sales ever along the Gulf Coast.
It also signals that investors remain bullish on luxury properties in Florida because of their relatively limited supply and high barriers to developing new product.
“The price reflects how strong Sarasota has become as a destination,” says Kevin Daves, whose Core Development Inc. co-developed the resort beginning in 1999.
As part of its “definitive agreement” to buy the resort, which is expected to close in April, Ashford Hospitality expects the Ritz-Carlton Sarasota to generate a return of 8%, based on its average 78.1% occupancy and average daily rate of $364.04, the company says.
Ashford Hospitality says the hotel generated net income of $4.4 million last year and net operating income of $10.2 million in 2017, although it adds those figures came from the seller and “will likely change.”
If the transaction closes as scheduled, Ashford Hospitality would acquire the resort at a trailing 6% cap rate, it notes. The company also plans to invest $9.7 million to buy a 22-acre tract adjacent to the Ritz-Carlton's golf club, to develop residences.
Richard Stockton, Ashford Hospitality's CEO, says the resort is a “luxury resort property with a premier location in the upscale and growing Sarasota market.”
“This property fits perfectly with our strategy of owning luxury hotels and resorts and further diversifies our portfolio,” Stockton says in a statement.
He expects the property, as well, will increase Ashford Hospitality's overall revenue per available room, a key industry metric for measuring hotel financial health, thanks to double-digit annual visitor gains to Sarasota beginning in 2012.
Lou Plasencia, CEO of Tampa-based hospitality consultancy The Plasencia Group, says the pending sale demonstrates that the Gulf Coast of Florida is gaining in credibility among institutional buyers like Ashford Hospitality.
“It further substantiates the West Coast of Florida as an institutional-grade investment market,” Plasencia says. “And understandably. The pricing is very solid and the Ritz-Carlton is a quality investment. Ashford has been looking for luxury product to acquire, and the Ritz-Carlton Sarasota is certainly one property that fits their portfolio and one that certainly makes a statement.”
Ashford Hospitality is buying the lodging property, which opened in November 2001 in the weeks after the Sept. 11 terrorist attacks, from Wichita, Kan.-based SLAB LLC, an investment group led by brothers Bob and Dan Buford.
Bob Buford, 84 and SLAB's managing member, did not return telephone calls for comment placed beginning in mid-January.
As part of the sale, Buford's SLAB LLC has agreed to provide $5.5 million in “income guaranty to cover any decrease from 2017 hotel gross operating profit for up to three years,” according to an Ashford Hospitality statement.
Company officials could not be reached to discuss the income guaranty or its significance in the transaction.
But Plasencia says the agreement, which he acknowledges is “very rare,” essentially means SLAB will set an escrow account to guarantee future income for Ashford Hospitality. He expects, too, that the new owner will be able to achieve expense savings and enhance revenue through asset management.
“Ashford brings very strong asset management practices to their properties, and they've been able elsewhere to generate increased revenue and expense reduction at the same time,” Plasencia says.
In the years since its debut, the Ritz-Carlton has become one of Sarasota's pre-eminent resorts, winning awards and rave reviews from guests and travel publications like Zagat, Forbes, Conde Nast Traveler, Travel + Leisure and others.
It is also among a select group of AAA Five-Diamond-rated lodging properties along the Gulf Coast, a distinction that Daves believes added to the hotel's attractiveness to potential investors.
“Markets like Naples and Miami have several five-star or five-diamond hotels,” he says. “Sarasota has just one.”
The hotels' prestige and guest focus ushered in a new era of recognition for Sarasota, more in keeping with the panache of Naples than of the former fishing village turned arts enclave and retiree haven the city had been known for in previous decades.
Although the sale price for the Ritz-Carlton -- if achieved — would be among the top tier of Gulf Coast hospitality transactions in history, it pales in comparison to the $250 million Dublin-based investor and developer Patrick Kelly offered Buford for the resort in 2006, when he was attempting to assemble a large bayfront tract centered around the 15-acre Sarasota Quay property.
But at $171 million, the sale of the Ritz-Carlton Sarasota would be eclipsed in dollar volume only by deals involving the La Playa Beach Resort & Club, at $185.5 million, and the $214 million sale of the Don CeSar, in St. Petersburg. Both of those sales also occurred within the past four years.
Ashford owns a dozen hotels in all, including the 142-room Pier House Resort & Spa, in Key West; the 293-room Renaissance Tampa; and the 180-room Ritz-Carlton St. Thomas in the U.S. Virgin Islands.
But while a closing could occur in a matter of weeks, several hurdles and unknowns remain.
Most notably, it is unclear how Ashford Hospitality will pay for the property. The company says it plans to buy the Ritz-Carlton Sarasota using either cash, a revolving credit line it maintains or by securing a non-recourse mortgage, or some combination thereof.
And the company says the deal may not close at all, an unusual statement when non-refundable contract of sale money has likely been committed to the purchase.
“Because the acquisition is subject to customary closing conditions, the Company can give no assurance that the transaction will be consummated by such a date or at all,” Ashford Hospitality says in its statement.
Also unknown is how Ashford Hospitality will attempt to overcome, if at all, logistical hurdles associated with the resort. The Ritz-Carlton Beach Club, accessible to hotel guests and members on Lido Key, is miles from the downtown hotel itself.
The resort's golf club, which is also open only to guests and members, is a half-hour to nearly an hour away by shuttle during busy winter travel months in Lakewood Ranch.
Both are believed to lose money overall on an annual basis, but are necessary amenities required by Ritz-Carlton owner Marriott International Inc. to achieve so-called “resort rates.”
Plasencia says Ashford Hospitality may decide to sell off certain amenities, such as the Ritz-Carlton's Tom Fazio-designed golf course, to generate income and trim expenses. If that occurs, he contends, hotel management would likely strike a deal with a third-party operator for access.
“It would be a way for Ashford to further enhance returns, by spinning off more superfluous amenities while still providing a luxury experience to guests.”
Ashford's acquisition also follows that of numerous other downtown Sarasota hotels -- including the Hyatt Regency and the Hotel Indigo. The 297-room Hyatt Regency, for instance, purchased in October 2016 by a group led by Tampa physician Dr. Kiran Patel, sold for $75 million.
The Ritz-Carlton sale also comes amid a wave of hospitality development in Sarasota that presents heightened competition.
A new Aloft, Westin, Embassy Suites & Spa and Marriott Autograph Collection property will add roughly 1,000 new keys to the city's inventory by the end of 2018. Although none of them are luxury properties, they are newer than the Ritz-Carlton and offer amenities and design favored by many of today's travelers.
1. Don CeSar, St. Petersburg: $214 million
2. La Playa Beach Resort & Spa, Naples: $185.5 million
3. Ritz-Carlton Sarasota, Sarasota: $171 million*
4. Tampa Waterside Marriott Hotel & Marina, Tampa: $150 million
5. Hilton Clearwater Beach, Clearwater: $134 million
6. Hyatt Regency Clearwater Beach, Clearwater: $120.5 million
7. Sirata Beach Resort & Conference Center, St. Pete Beach: $108.2 million
8. Tampa Hilton, Tampa: $101 million
Source: Property records, company data
*: estimate as of Feb. 16, 2018