St. Regis Atlanta Sold to Tavistock

March 2012


The sale was announced Feb. 16. Terms haven’t been disclosed, but the hotel alone probably sold for

The St. Regis Atlanta wasn’t on the market earlier this year when a Tavistock Group executive came to the city on business and booked a room. The executive was so impressed he was soon meeting with the St. Regis development team about acquiring the 151-room St. Regis and its 30 unsold luxury condos. Tavistock, based in Windmere, Fla., and known for partnerships with Tiger Woods on ultra-luxury resorts, was launching a new hotel platform and The St. Regis would be its first acquisition. The sale was announced Feb. 16. Terms haven’t been disclosed, but the hotel alone probably sold for $300,000 to $350,000 a room, or up to $52 million, according to industry observers. The deal solidified The St. Regis as a rare success story in a post-real estate crash landscape dotted with projects that flopped. It also suggested renewed investor confidence in Buckhead, where the 3344 Peachtree office tower recently fetched $345 a square foot and the Boston hedge fund The Baupost Group LLC infused the Streets of Buckhead development with $300 million. The St. Regis was one of three high-profile Atlanta luxury hotel and condo projects conceived in the past decade’s real estate boom. All faced the slowdown in the market, the collapse in real estate prices, looming debt maturity and the need to refinance. That’s where the similarities end. The St. Regis obtained new financing from blue chip investment bank Morgan Stanley in July 2010, replacing the original $176.5 million loan. At the time, it was a rare sign of confidence in Atlanta’s luxury market. Competing projects did not fare as well. iStar Financial Inc. last year foreclosed on the loan backed by Buckhead’s Mansion on Peachtree. Chicago-based Capri Capital Partners LLC took a primary ownership interest in the W Atlanta Hotel & Residences. The St. Regis development team benefited from a series of smart choices, solid execution and a tad of luck, observers said. Paul Freeman, lead developer of the St. Regis, was at the center of some of the most important changes to the project, located on the edge of one of the most affluent neighborhoods in Buckhead on West Paces Ferry Road, near the Governor’s Mansion. St. Regis equity partners brought Freeman in to replace original developer WCI Communities, after a deal with the Florida company fell apart. Freeman didn’t like the “wedding cake” design of the first concept because it limited premium space at the top of the 26-story tower. Freeman wanted buyers to have options that included units up to 9,300 square feet, private elevators into each home and outdoor living rooms. “Paul was so meticulous,” said Kent Levenson, an equity partner in the St. Regis and president of Easlan Capital. Freeman also took a unique marketing strategy. Instead of distributing mass promotional fliers about the new project to the entire market, he focused on more of a “friends and family” approach. Freeman talked about the project with people he saw at social gatherings. He pitched the idea to a friend at an Atlanta Falcons game. He stuffed the early drawings into his car trunk and drove to their homes. It was at least a year before he put the units on the market for sale, at the urging of Levenson. “What we were doing caught fire by word of mouth,” Freeman said. “It struck a chord with people.” The marketing effort drew Atlanta power players such as Howard Halpern, founder and patriarch of Buckhead Beef Co., and Gerry Benjamin, co-founder of Atlanta Equity and former managing partner with Chicago-based Navigant Consulting Inc. (NYSE: NCI) The project eventually recorded more than 40 pre-sold units. Key decisions also underpinned the success of the hotel, observers said. In the beginning, the development team bandied about an idea for at least a 300-room hotel. But they sought advice from Horst Schulze, former president and chief operating officer of The Ritz-Carlton Hotel Co. Schulze suggested the project should have all the amenities of a much larger hotel, but have just 150 rooms. They considered several flags for the hotel, including Mandarin Oriental Hotel Group, but landed St. Regis, a historic chain founded by John Jacob Astor in New York. “It had the name and the panache the others didn’t,” Levenson said. The decision to go with St. Regis “was a brilliant move,” said Paul Breslin, managing partner of Panther Hospitality, a local hotel consulting firm. “You’d be hard-pressed to find a more captivating name among the new luxury brands.” The hotel rooms are averaging about $350 a night, a bargain for Atlanta considering that’s what travelers would pay for nights at the Mandarin Oriental in Miami. It has led the Atlanta luxury sector in RevPAR, or revenue per available room. The St. Regis is several years ahead of revenue expectations, Levenson said. That cash flow also allowed the team to pay debt on the project as its condo sales struggled. The St. Regis didn’t escape the downturn unscathed, though. Development costs spiked 60 percent from the original estimate as prices for steel and other commodities soared. In 2008, as the financial crisis unfolded, many of the pre-sales for St. Regis condos fell through. The hotel also opened amid the backlash against executive travel on corporate jets, a job market in a downward spiral, and a collapse in real estate prices. About the only bright spot in the early going was that interest rates fell more sharply than Freeman and Levenson expected, enabling them to build up cash reserves. Also, buyers put down a 20 percent cash deposit on pre-sales. Those factors allowed the St. Regis team to carry the costs of the project. The St. Regis is now a destination for the “allure crowd,” or the people who want to be seen, observers said. With the amount of meeting space more commonly found in much larger hotels, it attracts major corporate and social events. It closed on about 50 percent of the square footage set aside for condos, though prices came down from $800 per square foot to about $710 a foot. A project like St. Regis might cost $250 million to develop today, observers said. It remains a symbol of the lofty ambitions of the previous real estate cycle. “I don’t know if you’re going to see a project like this attempted anytime soon,” Levenson said.