A prospective buyer for the Hyatt Regency Islandia Hotel, which stands on city-owned Mission Bay property, hasn’t backed away from the deal despite San Diego officials’ tabling of a request for a lease extension on the land.
Jena Thornton, who represents Seattle-based KenCal Ownership, the name given the entity , a group of labor union pension funds , that is bidding on the hotel, said the delay has also pushed up its price tag.
She wouldn’t cite the offering price, but said it increased about a half-percent when the buyer and seller went back to the negotiating table recently.
However, Bernie Murphy in the Encinitas offices of the Florida-based Plasencia Group, the broker representing the owner, Islandia Associates, Ltd., said the sum is “in the range of $60 million.”
Although the San Diego city staff members recommended approving a renewal of the Hyatt Regency Islandia’s 50-year lease, the council made a unanimous decision in late June to table the matter until September.
Thornton also said KenCal expects to spend about $28 million to make repairs and improvements on the property , about $3 million more than was originally anticipated.
The hotel was built in phases beginning in the mid-1960s. According to public records, Jerald Greenstein, who heads JG Management, a real estate investment and property management firm in Westlake Village, is a partner in Islandia Associates.
Adam Wexler, a spokesman for City Councilman Michael Zucchet, whose 2nd District includes the Hyatt Regency Islandia’s lease, said he and other council members tabled the matter against the advice of city staff because they didn’t want to make a hasty decision.
Thornton said KenCal wanted to wrap up the deal in July because reaping revenues from room rentals during San Diego’s peak tourism season would have helped pay for needed improvement and repair costs.
“This sets us three months behind schedule,” Thornton said. “Because of the seasonality of the hotel business, we were hoping to begin renovating in November, and that was assuming we closed (the deal) in July.
“The goal is to have a renovated property as soon as possible so we can increase room rates and generate more business. That’s really the biggest challenge the delay poses for us now.”
She said the expectation is that rooms would rent for an average of $200 or more throughout the year once renovations have been made.
According to a reservations clerk, the least-expensive weekend rate for rooms at the Hyatt Regency Islandia are currently about $229 nightly. San Diego’s hotel rates are typically higher in the summer than in the fall and winter.
Kennedy Associates Real Estate Council Inc., of Seattle, is acting as an adviser for KenCal. Kennedy Associates also advised a group of labor union pension funds that built the W San Diego hotel in Downtown’s Marina District in late 2002. The W San Diego also is for sale.
Meanwhile, the 15-member, city-appointed Mission Bay Park Committee, which protested the request for the lease renewal on the Hyatt Regency Islandia, needs time to carefully study the matter, said attorney Bob Otillie, the committee’s vice chairman.
The Hyatt Regency Islandia’s lease has 33 years left, but the deal reportedly would net the city at least $6.5 million more than the current lease. Additionally, the city would get a $1.2 million bonus when the sale is finalized.
That may have sounded good to the city’s real estate department, Otillie said. But he questions whether the proposal is in the best interest of the public.
“By constantly extending leases, you are essentially selling the property, because what you do is preclude any future generation from ever having the possibility of making a new land use decision for that property,” Otillie said. “So if we extend the current lease, the whole question is why do this.”
He also questions the rationale of approving a lease extension for a prospective buyer, not the seller, and whether such a move would be of greater benefit to the city or the buyer.
As to the proposed improvements and repairs, he acknowledged the hotel has seen better days. But he questions why the city’s real estate department wasn’t scrutinizing the condition of the property to see that it was properly cared for.
“This has raised serious questions about the quality of the city’s leases and whether it is doing a good job of obligating (tenants) to maintain a certain level of repair,” Otillie added. “We may need a top to bottom review of the leases to look at the issues here.”
According to industry sources, the Hyatt Regency Islandia is one of at least four San Diego hotels that are on the block, but it’s the only one that’s on city property.
Aside from the 261-room W San Diego, the 284-room Marriott Del Mar on El Camino Real is for sale, as is the 206-room Shelter Pointe Hotel in Point Loma.