News - 2005
San Diego Investment Firm Maps Acquisition Goals
June 2, 2005
By Orest Mandzy, Commercial Real Estate Direct Managing Editor
Interwest Capital Corp., a San Diego investment firm, has taken over the Galleria Park Hotel, a 177-room boutique property in San Francisco.
With the purchase, Interwest hopes to make a mark in the real estate investment community.
The opportunistic investment company has completed its first full year of operations, quietly putting together roughly $100 million of acquisitions. It aims to place roughly $100 million to $150 million of equity in the coming year.
The company is headed by Alex Roudi, an entrepreneur who has been investing privately in real estate for several year and Karl P. Coleman, a former executive vice president with First Commercial Corp., a San Diego company that invested in commercial mortgages. The two have put together an executive team that includes a developer and an investment manager who oversees $1.5 billion of mostly non-U.S assets.
Given the background of its principals, Interwest is able to participate in a wide swath of the real estate industry. For instance, it is considering investing in a massive development opportunity in Phoenix . To generate ongoing cash flow, it will invest in performing mortgages and stable properties. But its principals would like to focus on investing in distressed, or otherwise high-yielding mortgages.
The Galleria Park is an example. Interwest acquired a distressed securitized mortgage on the property several months ago and recently took over the property in a deed-in-lieu of foreclosure. An affiliate of Kimpton Hotel & Restaurant Group had owned the property, but it fell on hard times after the 9/11 terrorist attacks.
Interwest plans to upgrade the property and change management to Joie de Vivre Hospitality, an operator of northern California boutiques. It is aiming to stabilize the property over the next couple of years. It will then decide whether to recapitalize it, sell it or refinance it.
The property, constructed in 1910, sits on ground that is leased for another 34 years at Sutter and Kearney streets in the heart of the city's financial district.
It had perhaps its best year in 2000. And to avoid taking rooms temporarily offline, Kimpton held off on many potential upgrades. When the market tanked, it found that its rooms couldn't compete with those of other area properties that had been refurbished or recently developed.
In addition to its 177 rooms, the property contains some retail space that was occupied by two retailers that have since filed for bankruptcy.
Thanks in large part to the overall improvement in the economy, the hotel is once again generating positive cash flow and Interwest expects the property's revenue per available room to grow by double digits next year. Still, it isn't performing as well as it should largely because of a lack of capital improvements – something Interwest plans to address in the winter.
Going forward, Interwest hopes to take advantage of the massive volumes of securitized mortgages that are coming due – many of which no doubt will have problems refinancing at face value.
Comments? E-mail Orest Mandzy, or call him at (215) 504-2860, Ext. 211.
