Southbank Wyndham and property for sale separately

[JayBird]

I am naive to the local, or even the national commercial real estate markets, but $14.9M seems like a steal when it is prime location and approved for development which I imagine would bring the highest prices in Jax due to its location.

http://m.bizjournals.com/jacksonville/news/2013/07/19/colliers-international-brokers-tag.html?ana=e_du_pub&s=article_du&ed=2013-07-19&u=TRw0oGj+1To03lfSCUuPGg02a8ea14&t=1374261510&r=full
*phone does not allow cut and paste off of Jax Business Journal

And a related article from last year

Wyndham sale to be rescheduled
01/27/2012
by Mark Basch, Contributing Writer

A scheduled foreclosure sale of the Wyndham Jacksonville Riverwalk Hotel was canceled Thursday and will be rescheduled, according to court records.
The sale had been ordered in November by Duval County Circuit Judge Lawrence Haddock after finding that the hotel's owner, a partnership called Riverwalk Hotels LLC, was in default on $34.1 million in mortgage principal, interest and fees.

Property records show that Riverwalk Hotels bought the Southbank hotel in 2001 for $21.05 million.

The foreclosure lawsuit was brought in 2010 by GECMC 2007-C1 Prudential Drive LLC, an affiliate of LNR Partners LLC in Miami Beach.

Attorneys for Riverwalk Hotels and GECMC did not respond to phone calls Thursday seeking information on why the foreclosure auction was postponed.
http://www.jaxdailyrecord.com/showstory.php?Story_id=535518

[simms3]

Land around the hotel has been listed for centuries.  LNR is special servicer to the loan - they are based in Miami (though Starwood just closed on the acquisition of LNR and many of LNR's senior folks left).  I have heard that LNR is flabbergasted by land prices in Jax...they haven't entertained offers due to an inability to reconcile the local market to the needs of the loan on the land (I could be way off as this was maybe 1-2 or more years ago that I had heard anything).

In unrelated matters, it will be interesting to see how long the Wyndham remains on the market and its per key sales figure.  The latest Jax hotel news I have heard aside from the constant troubles at the Hyatt (was foreclosed early this year even though Chartres bought the city's signature hotel for less than $70K/room in '05) was that MHI secured $14.3M in financing for Crowne Plaza...quite a small note for a 292 room beast of a hotel.  Implies similar pricing to the Hyatt, not sure but F&B with the Ruth's Chris could be a large component of CP revenues.  Hyatt never was able to make F&B work successfully there it seems like.

Jax hotel market is a dismal dismal place, LoL.  Meanwhile a month or so ago the quasi-luxury Hutton Hotel in DT Nashville sold for $300K per key to institutional advisor/REIT advisor WP Carey.

http://www.bizjournals.com/nashville/blog/2013/05/hutton-hotel-sold-for-736-million.html?page=all

The Marriott Marquis in DT Atlanta just sold for a reported ~$185K per key...similar comp to Hyatt, large convention style hotel with meeting rooms and some F&B.

http://www.bizjournals.com/atlanta/news/2013/01/17/atlanta-marriott-marquis-sells-for-293m.html

[fieldafm]

I am naive to the local, or even the national commercial real estate markets, but $14.9M seems like a steal when it is prime location and approved for development which I imagine would bring the highest prices in Jax due to its location.

The previous owner was crafty.  The way the parcels were split up before the foreclosure means that you could buy the hotel but still not own the land nor the parking lot. 

The hotel building itself, aside from needing some cash for updates, is attractively priced and there is an existing entitlement in place on the surrounding parcels that's fairly attractive.  But the way the land is split up, it's going to take a certain kind of investor looking to do a multi-family luxury rental-type development in order to take on the project and buy up all five pieces of land.

[chipwich]

I feel that the Wyndham is a tear-down.  Last I checked, hotel occupancy rates in DT Jacksonville were somewhere around 60% (I think the Hampton actually keeps the highest occupancy rates).  The only component the Wyndham has going for it is its large convention space.  Otherwise the hotel and rooms are too old, obsolete and the hotel too spread-out.  It's been on and off the auction market for a few years now with no real Buyer.  To make the entire land parcel + hotel work, they need to tear down the hotel and rebuild it into a more compact space.

That said, the Southbank is on the right side of the river (much easier to development that the Northbank).  The entire land tract and hotel could be redeveloped into a great mixed-use project.  The biggest obstacle I see after the land price is the fact that you would need to build at a high density to make those numbers work.  Density (vertical) obviously costs a while heck of a lot more to build than one-story development (Town Center).

I hope they are able to sell it off.  Better yet, I hope the lender(s) of the hotel and land is willing to take a substantial haircut. 

[vicupstate]

It seems to  me that the division of the parcel into so many sub-parcels makes the whole thing less valuable and less likely to ever be redeveloped.   

[JayBird]

So could this be a possible opportunity for someone who can get funding to build us a new convention center/hotel/residence/retail or much better focusing on the old courthouse site for that? I too do not understand how breaking up the land increases value, I would think all 5 parcels together would be considered prime.

[Bativac]

I don't understand why people think this is such desirable, prime real estate. I get that it's on the river, but that is seriously all it has going for it. The hotel itself is kind of a dump. The area around it is not exactly brimming with life, particularly compared with other cities or riverfront areas. Given the luxury condos that are half built on the other side of the river, is a developer really looking to come in and build more luxury residences? Are people clamoring for that kind of housing? Especially since the Southbank does not feel like it's downtown at all, the way other recently developed residences do.

[simms3]

I don't know enough about this particular situation, but in my general experience I do not think the fact that the land is on five difference tax parcels hurts its sale or prospects.  Most land deals in urban environments I am acquainted with are in fact assemblages of multiple adjacent parcels.  It's a good thing that each parcel is under the same ownership.  Similarly, I don't think a ground lease for prime iconic DT real estate is abnormal or a hindrance to redevelopment.

The fact that there is a deadweight Wyndham under separate ownership in the middle is more of a challenge...a joint purchase of the land + hotel will simply have a more expensive and slightly more complex DD process and tougher coordination between buyer and lender for first mortgage, and in a tight market where there would be a best and final pool of 3+ buyers for each asset for sale, it would be a challenge to get both and would possibly require the cooperation of the two selling parties and a highly structured deal between buying parties.  This is Jacksonville - I suspect if anything ever gets sold, it will be to a lone soldier who buys both the hotel and the land and has no competition for either.

Neither the Wyndham nor the land are for sale for numbers that seem remotely "expensive" to me, even given Jacksonville's tough rental market.  Strand rents and Strand density are far more than what's necessary for the pricing I have seen or heard about.  Unfortunately, a buyer's potential only option would be multifamily.  Marina = money loser, but probably a necessary amenity.  Hotel is out of the question (and other DT hotel owners would be so happy to be rid of the Wyndham).  Office will never happen.  Institutional - there?  No.  Condos?  Not in Jacksonville (it's tough enough to secure a c-loan for condos in Manhattan!).  Even multifamily is tough in Jax - there is talk of oversupply in market thanks to SS and DT is still unproven and a challenge due to lack of rent growth and undesirable location.

For clarification - the pricing for the Wyndham, which likely sits on multiple acres is closer to bare bones land pricing than hotel pricing.  Clearly the Wyndham isn't meant to last.

[JayBird]

Well I don't think the structure is that good, have been in that ballroom several times and not impressed, but I think the value is in what could be there. Look right next door, people are on waiting lists to get in the Strand and according to Trulia all sales in the Peninsula for the past two years didn't last more than 120 days on market. I know several people that live in the Strand and they love it. A lot goes on in that area, it just seems like its quiet because everyone drives in and out. But stand in their lobby for 15 minutes on a Saturday morning and you'll get a feel for what Grand Central is like at 3pm on a Friday.

Simms, thank you that analysis actually makes sense to me.

[thelakelander]

I don't understand why people think this is such desirable, prime real estate. I get that it's on the river, but that is seriously all it has going for it. The hotel itself is kind of a dump. The area around it is not exactly brimming with life, particularly compared with other cities or riverfront areas. Given the luxury condos that are half built on the other side of the river, is a developer really looking to come in and build more luxury residences? Are people clamoring for that kind of housing? Especially since the Southbank does not feel like it's downtown at all, the way other recently developed residences do.

It's an old shipyards site too. Gibbs was there for most of the early 20th century (much longer than the coal gasification plant that Park View Inn building replaced). I wonder if the hotel predates today's environmental regulations? If not, there's no telling what's under this place for anyone considering it a tear down.

[simms3]

The ultimate question is what is the timeframe to continue operating the hotel before tearing it down?  This all has to be worked out at closing with the lender.

$15M for probably 5 acres of land underneath the hotel is equivalent to $3M/acre less (operational income * hold period discounted back at a fantastically high rate given market risk and desired leveraged return on the deal)/acreage plus the cost to demo the building inflated for timeframe it would happen in.

So basically likely still right around $3M/ac given that I can't see this hotel operating at much of a profit...that's a high price per land in Jacksonville, but still not "that" high compared to similar land in peer cities and relative to rents we know can be achieved thanks to the Strand comp (question is - is there a market for hundreds of more similar units?  I seriously doubt the overall waiting list for the Strand except for maybe a few desirable units facing a certain direction with certain floorplan on view floor...a waiting list is only discussed or meaningful market signal if it's a waiting list to get into the 100% occupied building, which rarely happens outside of the tightest of markets).

I am predicting that there won't be a sale.  Wyndham will foreclose.  LNR will be stuck holding the land (who knows when maturity is...it's got to be coming up though).  And like Lake said - the remediation of this site to be discovered during anyone's DD process could be a deal ender should this thing ever go into contract.  That alone could add $1M+/acre to the land basis, which is really putting the value of this land north of where it deserves to ever go in Jacksonville.  Nobody wants to be the guy who "paid THAT much for THAT land", LoL.  Investors actually think like that...publicity is a factor!

[JayBird]

No the waiting list is floor plan specific, if you want a unit overlooking San Marco you don't have to wait long at all.

[simms3]

^^^Well that doesn't prove anything about rental demand downtown then!  If the building were effectively fully leased and there was a burgeoning job market downtown and limited living options and a real clamoring to get into a nearby rental as there notably is in SF (I could tell you how ridiculous it is here...3-6 months security deposit up front...which in this city is equivalent to a downpayment on a sizable home or luxury condo in Jax...people waving blank checks in the air at "exclusive" open houses where miraculously 20-40 people show up), i.e. a lengthy/expensive waiting list to get into the Strand, that would be a totally different thing!

There should be a waiting list for a 30th floor 2BR unit facing N/NW towards downtown, even if the Strand were in Macon, GA!  That's essentially no different than a condo in a market like Jax...I would assume the renter profile for said unit is far different than the renter profile for equivalent unit in larger market.

[JayBird]

Wow and I thought the process getting my apt in SoHo was ridiculous. We pay sky high rent, but at least they still utilize the "first and last" move in deposit method.

[simms3]

Diff between NYC and SF is that traditionally NYC keeps up new rental deliveries in a sustainable amount each year.  In SF, this is basically the first year new apartments are delivering in eons due to the insanely impossible development environment here...and still only ~3,100 units for a city expected to increase to 1.1 million by 2040.  Plus we're in a tech boom (tech industry here is like the financial industry in NYC, except analysts and associates in NYC actually work super long hours and arguably IMO deserve their pay there...techies here make $200K starting just for lounging around and showing up at Oracle or Google for 6-8 hours).