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Friday, Jan 27, 2023

Pink Lady

Imagine going from parking lot attendant at a New Mexico hotel to being chosen among a league of contenders to buy one of the most iconic hotels in California and, suddenly, the lending market goes into a tailspin.

How’s that for drama?

Michael Gallegos, president and chief executive officer of San Diego-based American Property Management Corp., which owns and operates 45 hotels in the United States and Mexico, had privately pursued the historic La Valencia Hotel before the owners officially put it on the block in August.

While en route to Mexico on Feb. 19, Gallegos, who’d thrown his hat in the ring to compete against such big-name brands as Starwood Capital Group, Rosewood Hotels & Resorts and L’Auberge, learned that the Collins Cos. of La Jolla and the Getty Family Trust had selected APMC’s bid for La Valencia and its sister property, the Rancho Valencia Resort and Spa in Rancho Santa Fe.

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A sales contract was executed on the weekend of Feb. 16, Gallegos said.

He declined to give the price, citing a confidentiality agreement.

However, industry sources have pegged the value of the 115-room La Valencia, which came with an 18,000-square-foot parking lot across the street, at $100 million. The value of Rancho Valencia, which has 54 suites on 40 acres and was built in stages beginning in 1989, was estimated at $40 million.

“But I can tell you, I wish we were buying Rancho Valencia for $40 million,” Gallegos said.

Crippled By Fallout

While the current lending market, crippled by the fallout in subprime loans, has shrunk considerably in size, Gallegos said he’s not worried.

“We are in negotiations with three lenders as we speak,” he said. “All are U.S. lenders and all have enormous wherewithal and they have weathered this market.”

APMC has 60 days from the time the sales contract was executed to obtain financing.

The Collins Cos. did not return phone calls.

When the properties went on the market, Alan Reay, who heads the Irvine-based hotel brokerage, Atlas Hospitality Group, said he knew they’d fetch interest among top-name hoteliers because both are unique and irreplaceable.

“The Valencia Hotel is unique because it’s in the center of downtown La Jolla and has spectacular ocean views,” Reay said. “But both La Jolla and Rancho Santa Fe have huge barriers to entry. There is no land left available for hotel development in downtown La Jolla and very little that I know of in Rancho Santa Fe.”

Built on Prospect Street in 1926, La Valencia houses The Whaling Bar & Grill as well as the Sky Room, Mediterranean Room and Tropical Patio restaurants and overlooks La Jolla Cove and the Pacific Ocean.

It is one of three hotels in the county considered grande dames. The others are the Hotel del Coronado in Coronado and the US Grant Hotel downtown.

Robb MacMillan, president of National Properties Group, an adviser to the buyer, said that APMC expects to invest $18 million or more making renovations on La Valencia.

Fraction Of Pie For Sale

Rancho Valencia contains 12 fractional ownership villas, which differ from time shares since people own portions of the properties, not just the right to stay there.

The fractions are divided into eighths, and Gallegos said that 52.5 percent of the shares had been sold, but sales were suspended when the hotel went on the market. The villas range in size from 1,200 square feet to 5,000 square feet and sales of the remaining fractions could bring in more than $21 million, less fees and commissions, he said.

“There’s a waiting list of at least 12 people who want to buy units,” he added.

Meanwhile, a building entitlement for Rancho Valencia that would allow the addition of as many as 25 residential units includes hotel guest rooms or villas that could be sold as fractional ownership units, he said.

While it’s possible that the parking lot on Herschel Avenue across from La Valencia could be redeveloped with a subterranean parking lot, street-level retail and residential units above, he said it would be a lengthy undertaking.

“We’d have to go through an entitlement process with the Village of La Jolla and the city of San Diego, and then get (California) Coastal Commission approval.”

He did not say whether the fractional ownership shares at Rancho Valencia would make it any easier to gain financing. But developers have used such means, as well as condotels, which turn average investors into hotel room owners, to build hotels.

Gallegos began working as a parking lot attendant at La Fonda Hotel in Santa Fe, N.M., before he was old enough to get a driver’s license.

At 18 years old he became La Fonda’s general manager, earning the distinction of being the youngest in the country to hold that title at a 4-star hotel.

APMC currently counts a total of 13,600 rooms in hotel assets that are valued at $2 billion.

The San Diego Business Journal first reported this story on its Web site on Feb. 19.

American Property Management Corp.

President and CEO: Michael Gallegos.

Founded: 1990 in Albuquerque, N.M.

Moved to San Diego in 1998.

Assets: Owns and operates 45 hotels in the United States and Mexico with a total value of $2 billion.

San Diego hotels: Holiday Inn Mission Bay Sea World; Hotel La Jolla; Doubletree Hotel San Diego Downtown.

Historic properties: McKinley Grand Hotel, Canton, Ohio; Sheraton Gunter in San Antonio; Hilton St. Louis in St. Louis.


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