Challenge:
Develop a 1,001-room dual flag, convention hotel and build and sell 224 luxury condos.
- 878 room JW Marriot, 123 room Ritz Carlton and 224 Ritz branded Condominiums
- Total development cost $1B
- Part of a mixed-use entertainment district on top of a 2,000-space underground garage.
Solution:
To create multiple income streams and subsidies to make the project viable
- Embed electronic building signage
- Create revenue from adjacent but not owned parking
- Negotiate a 30-year TOT agreement for $278m.
- Negotiate favorable financing from a union pension fund
- Maximize condominium sales revenue
- All cashflow streams were designed to lower the net cost of the hotel, so it could become a profitable operating asset.
Outcome:
- Condominiums were not successful. There were too many for the market. They were priced correctly and the first 50% sold well. The remaining were difficult to sell but eventually sold through with a sizable bulk sale.
- The hotel operating revenue vastly exceeded projections, creating a highly profitable JW Marriott but the Ritz Carlton’s operating cost was so high as to negate any financial benefit of the second flag.
- The project recapitalized upon stabilization causing the loss of approximately $100m to the financial partner but over time has become a successful project.
