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APMC on Buying Binge for Exclusive 4-, 5-Star Hotel Properties

In the interest of boosting the star power of its portfolio, American Property Management Corp., San Diego’s largest lodging company, is finalizing deals on five high-end hotels in the town of Washington, Conn.; Palm Springs; St. Louis; Cancun, Mexico; and Mexico City, while shedding some of its limited-service inns.

If all goes as expected, APMC will have spent hundreds of millions of dollars acquiring eight hotels in the first three quarters of 2007, and the year’s not over. In January, the company bought a hotel in Albuquerque, N.M. In the spring, it purchased another in Oklahoma City, and this month, it closed on a property in Orlando, Fla., said President and Chief Executive Officer Michael Gallegos.

But that’s not all. APMC is also shelling out $186 million to build a luxurious high-rise, the Miami Brickell in downtown Miami, which Gallegos said “is going to be one of the world’s most elegant, iconic hotels.” Construction began this month and will take 38 months to complete, he said.

Properties Sold

In keeping with the company’s new strategy, it has also sold several properties, including some 3-star hotels, Gallegos said.

Within the last six months, the firm sold Hilton Garden Inns in Rancho Mirage, Nashville, Tenn., and Tampa, Fla., the Radisson North Austin, in Austin, Texas, Doubletree in Tucson, Ariz., and the Hilton Toledo in Toledo Ohio, which it still manages.

Altogether, the company netted $135 million from the sale of those properties, he said.

“We sold some assets that had been in our portfolio for a long time,” he said. “These have been our bread and butter and we always prospered with them.

“But as our company evolves we see more opportunity in the 4- and 5-star segments, especially with world-class assets and spas linked to them. That’s our aspiration.”

According to Alan Reay, president of the Atlas Hospitality Group, an Irvine-based hotel brokerage, APMC is on the right track.

“From an investment standpoint, buying 4- and 5-star properties is a smart strategy,” Reay said. “Hotel development now is predominately in the 3-star, limited-service sector.

“By moving out of that sector and getting into the 4- and 5-star full-service sector, Michael is somewhat protected from oversupply and new competition because not a lot of people are developing 4- and 5-star properties since it’s so expensive.”

Gallegos, an Albuquerque transplant who said he moved APMC’s headquarters here in 2000 on the notion that being in a top tourism market would afford more opportunity for growth, was apparently correct in that assumption.

Value Stands At $1.7B

The value of the firm’s U.S. and Latin American assets stands at $1.7 billion, up $500,000 from 2006.

APMC employs 55 people at its Aventine Plaza offices and 5,500 at the 45 hotels it owns and operates in the United States and Mexico. Its local properties include the Hotel La Jolla.

The priciest of the firm’s pending hotel acquisitions is the ultra-exclusive, 16-year-old, 30-room Mayflower Inn and Spa in Washington, Conn., which is expected to close in the next week or two.

“I’ve never paid that much for a hotel before,” Gallegos said.

At a “per key,” or per room cost of $1.2 million, APMC is paying $36 million. Including 58 acres of pristine forest on which the property sits, the tab comes to $66 million, he added.

“There are deer roaming through that property,” he said. “There are more birds than I can identify and some very fat squirrels.”

Ranked No. 1 as a destination spa by leading travel publications, the property has trained staff available to coach guests on nutrition, fitness, wellness, yoga, exercise, tennis and other activities, Gallegos said.

With average annual occupancy running at 72 percent, the average daily room rate is $1,200, he said.

Bob Rauch, a professor at San Diego State University’s School of Hospitality and Tourism Management, said that programs and facilities catering to interests in health and fitness are a growing trend in the lodging industry.

“The appeal of wellness has certainly gone mainstream,” Rauch said. “I think that American travelers believe they’re entitled to vacations, and clearly they’re being told to watch what they eat and exercise.”

The “takeaway,” he said, is that guests are able to practice those routines and regimens when they return home.

50 Percent Share

To add to its mix of luxurious lodging accommodations, APMC is also buying a 50 percent share in Paraiso de la Bonita in Cancun. Carlos Gosselin of Mexico, who developed the 90-room, all suites property on a 13-acre beachfront stretch four years ago, will retain a 50 percent share.

Gallegos said that a contractual agreement prevents him from divulging what APMC is paying to acquire its share, but he placed the property’s value at $100 million, and said that his company will manage it.

Paraiso de la Bonita runs at an annual occupancy rate of 68 percent and an average daily room rate of $1,500, he added.

Hotel Zoso in Palm Springs is also on APMC’s want list. Approvals were needed by American Indian tribes that own the land on which it stands. In May, the hotel’s owner, USA Capital, filed for involuntary Chapter 11 bankruptcy protection.

APMC’s offer of $38 million for the 160-room hotel and 63 adjoining villas was approved by the bankruptcy court. But the company could be outbid before a court-set deadline of Oct. 9. If that happens, APMC will be given a chance to counter-bid, Gallegos said.

Hotel Zoso is 25 years old. Its annual occupancy rate is 70 percent and the average daily room rate is $145.

Also on the list of pending purchases is the 5-star Sheraton Centro Historico in Mexico City. APMC expects to close on the $150 million deal to buy the 4-year-old, 27-story, 457-room hotel in the next two weeks and to change its brand to Hilton Mexico City Reforma.

In mid-August, Gallegos expects to close on the 4-star, 195-room Hilton St. Louis, which is a 2-year-old renovation of a historic downtown bank building. Gallegos said that area is undergoing a redevelopment effort similar to San Diego’s Gaslamp Quarter. He said the contract agreement barred him from citing the purchase price.

In February, APMC bought the 31-year-old, 276-room Wyndham Albuquerque Airport for $33 million. In mid-April, it scooped up the 4-star, 22-year-old, 395-room Sheraton Oklahoma City for $44 million, and on July 24, bought the 30-year-old, 301-room Sheraton Studio City Hotel in Orlando for $30 million.

While APMC typically partners with one to six individuals in its acquisitions, Gallegos said he is not at liberty to reveal their names.

Credit Suisse has been selected as a lending institution for a couple of the upcoming property purchases, but lenders for the others have yet to be chosen.


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