Dell’s Hawaii Resort Nears Loan Workout as Demand Climbs

Jan. 23 (Bloomberg) -- Bloomberg's Cristina Alesci reports on the potential impact of Microsoft possibly providing part of the funding for Dell to go private. She speaks on Bloomberg Television's "Bloomberg Surveillance."

The loan on the Four Seasons Resort Hualalai, a Hawaiian vacation area co-owned by Michael Dell’s MSD Capital LP, is close to a restructuring as the property benefits from higher room rates and rising luxury-home demand, said Patrick Fitzgerald, chief executive officer of the resort.

“I anticipate we will reach a conclusion on a very detailed term sheet within the next 30 days,” Fitzgerald said in a telephone interview. “From today’s point of view, the ownership and equity structure will pretty much look the same.”

The $176 million loan backed by the resort’s hotel and a leasehold interest in land was sent to a firm specializing in troubled debt in June, when it matured, Morningstar Inc. (MORN)’s Structured Credit Ratings unit said in a report. The property, which had been hurt by falling travel after the credit crisis and damage from the 2011 Japanese tsunami, was valued at $356.6 million in August, the report showed. MSD Capital and Rockpoint Group LLC paid $503.6 million for the real estate in 2006, according to Fitch Ratings.

The 865-acre (350-hectare) resort on the Big Island, which also includes a master-planned community, is seeing increased demand amid a travel rebound that has sent Hawaiian tourism revenue to a record. Room rates at the 243-room Hualalai hotel on the property are back to their peak 2007 levels -- a one-day stay this week started at $945 -- and this year probably will be the best yet for nightly prices and demand, Fitzgerald said.

Rising Occupancy

Occupancy at the resort, which includes an 18-hole golf course, tennis courts and a salt-water snorkeling pond with more than 3,500 fish, will probably rise to more than 80 percent this year, from “high 70 percent” in 2012, Fitzgerald said. MSD and Boston-based Rockpoint spent about $40 million on renovations to the property after the 2008 credit crisis, he said.

Bud Perrone, a spokesman for LNR Property LLC, the special servicer handling the Four Seasons Hualalai loan, declined to comment on the restructuring.

Hawaiian lodging revenue, including room rentals and food and retail sales, rose 15 percent to a record $3.62 billion last year through Sept. 30, according to Honolulu-based Hospitality Advisors LLC, a consulting firm. The island of Oahu had the highest occupancy of the 25 largest U.S. markets last year, at about 85 percent, data from Hendersonville, Tennessee-based research company STR show.

While the Big Island has lagged behind Oahu in its recovery, the Hualalai resort has benefited from its renovations and the Four Seasons branding, said Joseph Toy, CEO of Hospitality Advisors.

Four Seasons

“The Four Seasons name helped them a lot,” Toy said in an interview yesterday at the Americas Lodging Investment Summit in Los Angeles. “That’s a name that carries a particular weight on Hawaii. They would have had a very difficult time as an independent property.”

MSD Capital also owns the 380-room Four Seasons Maui, which it bought for $280 million in June 2004. The firm defaulted on a loan on the property in 2010 after a “significant occupancy and rate deterioration in the Maui market,” according to Morningstar. It restructured the debt in 2011, with new terms including a five-year maturity extension, Morningstar said.

New York-based MSD Capital manages money for Dell, whose Dell Inc. computer company is close to a deal to be taken private in a leveraged buyout, according to people familiar with the matter.

The Hualalai property includes 300 residential units, which are a mix of single-family residences and condominiums, according to Fitzgerald.

The resort had 35 home sales totaling $110 million last year, the most transactions since 2007, he said. As of Jan. 18, Hualalai had nine deals slated for completion in the first quarter, for a total of $26 million. A total of $24.5 million of properties sold in the first three months of last year, Fitzgerald said.

The resort is about to complete its first sale of a development lot in four years, for $3.7 million, he said.

“The number of sub-developers approaching me these days has shot up,” Fitzgerald said. “I get calls all the time.”

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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