- October 22, 2019
Despite its outsized $100 million purchase price, this month’s acquisition by a Gencom Group-led partnership of the Grand Plaza Resort and Beachcomber Beach Hotel & Resort, both on St. Pete Beach, appear to be somewhat out of character for the Miami-based company.
That’s because Gencom, a firm founded in 1987 by hotel veteran Karim Alibhai that has completed $7 billion worth of hospitality deals since its inception, typically invests in luxury properties.
Its current portfolio, for instance, includes a Four Seasons Hotel on an exclusive peninsula in Costa Rica; the Hyatt Andaz Papagayo, also in the Latin American country; the Rosewood Tucker’s Point resort, on the island of Bermuda; and five Ritz-Carlton hotels, in Fort Lauderdale, Philadelphia, Beaver Creek, Colo., Key Biscayne in South Florida and Coconut Grove, in Miami, according to the company’s website.
Neither the Grand Plaza nor the Beachcomber are currently considered luxury lodging, despite their beachfront locations and a raft of amenities.
The Grand Plaza was completed as a Hilton hotel in 1975 and renovated last in 2016 by then-owner Excel Hospitality Inc., a company led by James Kotsopoulos, according to records. The 10-story, 156-room hotel also maintains the only revolving rooftop restaurant and lounge in Florida.
Gencom purchased it for $76 million, according to Pinellas County property records.
One quarter mile away, the two-story Beachcomber contains 102 rooms. It also opened in the 1970s and sold to Gencom for $24 million, county records indicate.
Although Gencom notes both hotels “will initially remain independent and unbranded,” each represents a “unique repositioning opportunity,” the company says in a news release announcing the acquisitions from Excel.
To that end, Gencom intends to invest $24 million into the pair of hotels “for major renovations to upgrade and rebrand the two properties.”
The scope, timing or type of renovations could not be determined; Gencom officials did not return telephone calls for comment.
Both properties will, however, be managed going forward by Benchmark, a hospitality management company that operates 65 hotels containing more than 9,000 rooms, according to Gencom’s website. Gencom and Benchmark formed a “strategic management partnership” three years ago.
“Gencom has been focused on building a luxury hotel portfolio, and they’ve added to those assets and hung on to them,” says Daniel Peek, senior managing director and head of commercial real estate brokerage firm Holliday Fenoglio Fowler L.P.’s hotel group, who negotiated the Gencom transaction on behalf of Excel.
Excel will, however, stay connected to the properties post-sale as a result of $60 million in loans to Gencom-led partnerships executed last month, according to Pinellas County records.
“Benchmark’s portfolio has, by contrast, been a bit more diverse,” added Peek, who worked together with HFF Director Preston Preston Reid and Associate Wyatt Krapf on the transaction.
“They manage resorts in a variety of places, so this purchase may have been partly driven by the desire to expand their footprint to St. Pete Beach,” adds Peek, who in the past two years brokered the $180 million sale of the Vinoy Renaissance Resort and Golf Club and $47 million deal for the Postcard Inn on the Beach, both also on St. Pete Beach.
The Sirata Beach Resort and Conference Center, also on St. Pete Beach, also sold within the past two years. In July 2017, a partnership between Crescent Real Estate LLC of Texas and Five Star Realty Partners LLC, of Georgia, bought the 15-acre, 382-room resort for $108.2 million.
Peek says that given hotel valuations today, Gencom may also have been looking to prudently allocate capital in buying the Beachcomber and the Grand Plaza.
“St. Pete Beach has strong value today, and yet, to find a similar yield profile on either the East Coast of Florida or, say, Southern California, you’d have to pay dramatically more per room.”
Kent Schwarz, an executive vice president with commercial real estate brokerage Colliers International who specializes in hotel transactions, says Gencom’s acquisition likely focused on the Grand Plaza, which will be easier to upgrade.
“I would assume part of the repositioning of the Grand Plaza will involve putting a flag on it, and if you look at the general area, including Clearwater Beach, Marriott certainly has been under-represented,” Schwarz says. “This could be a real opportunity for them to get into that market.
“I think the intent here was to acquire the Grand Plaza, and the Beachcomber was included in the package because it was a logical and streamlined way for the seller to dispose of both properties at the same time.”
Schwarz contends, too, that of the $24 million that Gencom has pledged to invest in capital improvements, the bulk of the money will go toward improving the Grand Plaza.
“I think the Beachcomber, given its age and condition and location, is probably, ultimately a tear down, because the underlying land is so valuable and the beach there is gorgeous.”
He concurs, as well, with Peek’s assessment that Gulf Coast, beachfront hotels are beginning to be discovered by institutional buyers and that at least part of Gencom’s plan was to bolster Benchmark’s portfolio.
“Karim (Alibhai) is highly respected in the hotel industry, and Benchmark has made a name for itself through value-add propositions,” Schwarz says. “This may be a signal that together they are looking to add value through good management practices, at least initially, rather than through acquisitions.
“The Benchmark alliance may have marked a shift in strategy for them.”
Location also almost certainly played a role.
“For years, the consensus within the (lodging) industry was that the Gulf Coast of Florida wasn’t taken seriously as compared to the East Coast. There’s very little logical reason why Gulf properties have not been more attractive to investors,” he says. “So this may be a sign that finally buyers are recognizing the beauty and amenities on the Gulf Coast, together with the strong occupancies and room rates.”
Peek declined to speculate on whether Gencom would eventually raze one or both of its new beachfront properties to make way for more exclusive and upscale resorts.
He notes that hospitality properties on the beach almost always receive greater interest from potential buyers.
“People view beachfront property differently than some other lodging assets because there’s good, long-term land value,” Peek says. “There’s an understanding that oceanfront land always commands a premium price and significant interest in the marketplace.”