Oakland A's Owner Wolff Seeks $1.8 Billion From Hotels as Sales Considered «

    Oakland A's Owner Wolff Seeks $1.8 Billion From Hotels as Sales Considered

    Lew Wolff, co-owner of the Oakland Athletics baseball team, began acquiring luxury hotels in the 1990s, when they were considered a risky investment. Now he may be selling as rivals are buying properties. Maritz, Wolff & Co., the Los Angeles-based company founded in 1994 by Wolff and Philip “Flip” Maritz, has cut its portfolio to nine hotels, including Manhattan's Carlyle, from almost 50 a decade ago. The closely held firm is seeking to return another $500 million to investors in the next four years. “We don’t have any of the pressure that public companies have,” Wolff said in an interview. “We have time to find legitimate buyers at a price we wouldn’t necessarily pay ourselves. That makes it a good deal.” The 76-year-old investor is considering selling as hotel values begin to recover from their recession slump. Prices peaked at about $126,000 per room in 2007 then plunged 39 percent to a low two years ago, according to New York-based research company Real Capital Analytics Inc. The average price climbed to more than $160,000 a room in last year's fourth quarter because of a surge in luxury-hotel transactions. Even with the increase in values, it's too soon to be a seller of lodging properties, said Patrick Scholes, a New York- based analyst with FBR Capital Markets. “After what we’ve just come through, for the most part it's probably better to be buying at this point than selling, because we’re still early in the price appreciation of hotels,” he said. Contrarian Investor Wolff, also co-chairman of real estate investment trust Sunstone Hotel Investors Inc. (SHO) and part owner of a soccer team, has long made contrarian investment decisions — in lodging and in the sports world, his business partner said. “Lew and I would rather zig when others are zagging,” Flip Maritz, 50, said in a Feb. 22 interview in Beverly Hills, California. “There are so many buyers, REITs or pension funds that are looking to deploy money. We’d rather be the sellers at this point than the buyers.” Maritz and Wolff, both St. Louis natives, met in 1990, when they were introduced by a mutual friend. Wolff had been president of the real estate division of movie studio Twentieth Century Fox, while Maritz was working in office-building leasing in Northern California. One of their first investments together was in sports, not lodging. In the early 1990s, the owners of the St. Louis Blues were considering moving the National Hockey League team out of the city. The two men participated in a group to acquire the Blues and keep it in town. Called the Mayor “Lew said, ‘I like hockey,’ and called the mayor to discuss the possibility of buying the team,” said Maritz, who is also managing director at Palo Alto, California-based real estate investment firm Broadreach Capital Partners. The duo's first luxury hotel investment was the 1994 acquisition of the Ritz-Carlton in St. Louis, which was financially troubled. The purchase paved the way for Maritz Wolff to become one of the biggest luxury-hotel owners in the U.S., with stakes in 49 properties at its peak in 2001. “I had never been in the hotel business,” Maritz said. “For both of us, it was a pretty big leap.” The investment in luxury hotels seemed contrarian at a time when high-end properties were viewed by many investors as too risky after real estate values had plummeted following the savings-and-loan bust of the 1980s, Maritz said. Gap Family John Fisher — son of Gap Inc. (GPS) co-founder Don Fisher, who died in 2009 — and his family have been investors in Maritz Wolff since its formation. The Fishers have a majority stake in the Oakland A's and also co-own the San Jose Earthquakes soccer team with Wolff. “Lew sees things far ahead of most other people,” said the 49-year-old Fisher, who helps manage his family's fortune, in a telephone interview. “He likes to pretend he's an old man but, in truth, Lew operates on a very entrepreneurial and forward-looking basis.” Wolff, who has lived in the same two-story Tudor home in the Westwood section of Los Angeles for 40 years, employs a full-time driver and has his own Citation jet for flying to make deals and visit the Oakland A's offices. He and his wife Jean have a daughter and two sons, one of whom works on sports-venue developments for Wolff. Maritz Wolff, whose properties include the Park Hyatt Aviara near San Diego, has a total return target of $1.8 billion by about 2015, Flip Maritz said. That would be 3.2 times the original investment, according to the two men. By 2007, the company sold more than $1.1 billion of hotels. It has had an internal rate of return greater than 30 percent a year, according to Maritz. Guarantee ‘Good’ Returns “We were always looking to buy the best product in each market, like the Four Seasons in Austin,” Wolff said. “We felt buying those kind of hotels would guarantee us good returns.” Sales of lodging properties in the Americas are likely to jump as much as 25 percent this year to $13 billion, buoyed by REITs and foreign investors seeking to deploy cash, brokerage Jones Lang LaSalle Hotels said in January. A rebound in U.S. business and leisure travel is attracting hotel investors. Revenue per available room, or revpar, in the top 25 U.S. markets rose to $68.89 in the first two months of 2011 from $62.90 a year earlier, according to Smith Travel Research Inc. of Hendersonville, Tennessee. Any of the duo's remaining nine properties, including the upscale Carlyle on Manhattan's Upper East Side, may be sold should an offer prove attractive. ‘No Emotional Ties’ “I have no emotional ties to any property,” Wolff said. “They are inanimate objects. That's the only way we can be fair to our long-term investors who trust us to do what's best.” Maritz Wolff has received numerous calls from potential buyers for the Carlyle, whose cash flow never dropped below $10 million annually during the recession, Flip Maritz said. The 188-room hotel boasts views of the Manhattan skyline, features “fine antiques” in many rooms and provides “lush velour terry child-sized” bath robes and slippers for its younger clientele, according to its website. “We get approached a lot, and when you get approached, you think about things,” Maritz said. For properties like the Carlyle, it's reasonable for Maritz Wolff to consider offers, said Scholes, the FBR analyst. “Where it may make sense to sell is if you’re in a gateway city with a trophy hotel that doesn’t need significant capital expenditures,” he said. “Bidding for those has been crazy.” Lagging Ballpark Attendance Wolff has faced challenges over the past several years with both his hotel and sports investments. During the recession, the lodging industry slumped to its lowest levels since the Great Depression. Failed attempts to build a new baseball stadium have perpetuated lagging attendance for the Oakland A's, in which he purchased a stake in 2005 at the suggestion of Major League Baseball Commissioner Bud Selig. He and Wolff were Pi Lambda Phi fraternity brothers in the 1950s at the University of Wisconsin, Madison. There are similarities between owning a baseball team and owning a hotel, Wolff said. “In one case we sell rooms and in the other case we have seats to sell,” he said. “Every time a guest has a good experience they hopefully become an annuity and continue to come back to the ballpark or to the Carlyle.” Theory of ‘Moneyball’ Wolff said he has drawn inspiration for both hotel purchases and his team investment from “Moneyball,” the 2003 book by Michael Lewis that detailed the Oakland A's use of such player data as slugging percentage to judge performance. “The theory of ‘Moneyball’ is that by looking at certain statistics you can make a better subjective decision,” Wolff said. “All decisions in baseball are ultimately subjective. Similarly, the best way to buy quality properties is to not buy 20 hotels and raise money for that, but to view each one individually.” Billy Beane, general manager of and an investor in the A's, said Wolff is as deeply involved in the team as he is in the management of his hotels. “Since Lew became managing partner, since that day, quite frankly, I talk to him at least once a day,” Beane said in a telephone interview. “But that can probably be misleading because Lew is giving me a lot of autonomy.” Fairmont San Francisco In the lodging business, among Maritz Wolff's challenges has been the Fairmont San Francisco, a hotel the company owns in partnership with Saudi billionaire Prince Alwaleed bin Talal. The investors have been unable to get city permission to convert a portion of the Nob Hill hotel into a residential tower and Maritz Wolff is considering selling its stake, Flip Maritz said. “We’re at a point where we feel, maybe let the next guy figure it out,” he said. Maritz Wolff has had to contend with natural disasters as well. In the West Indies, the company had to rebuild the Four Seasons Resort Nevis twice after hurricanes damaged the property. After the third storm, the company handed the hotel over to its lenders. The Fairmont New Orleans was “pretty much devastated” by Hurricane Katrina, Wolff said. Wolff Maritz used insurance proceeds to pay back all the lenders in full and then sold the hotel to a local developer, who rebuilt it as the Roosevelt New Orleans, Wolff said. Beanie Babies Most of Maritz Wolff's hotel dispositions have been more lucrative. In 1999, Maritz Wolff merged its 50 percent share in Fairmont Hotels & Resorts with Canadian Pacific Hotels. Fairmont today manages more than 60 hotels, including the Plaza in New York. In 2004, Fairmont bought Maritz Wolff's share for $75 million, about triple the original investment, Maritz said. In 2000, Maritz Wolff sold the Four Seasons Biltmore in Santa Barbara, California, to H. Ty Warner, the creator of the Beanie Babies line of toys, for $150 million. The company had bought the property five years earlier for less than $50 million. Even as Maritz Wolff — which also holds a 50 percent stake Rosewood Hotels & Resorts, the Dallas-based operator of 19 properties — mulls additional sales, a partnership between the two men is “very likely” to continue because they enjoy each other's company, Maritz said. “I don’t fool myself that I can continue indefinitely,” Wolff said. “But I have too many friends that retire and a year later they call me for any extra office space. That's why I don’t plan on stopping.” Says Beane, the A's general manager, of Wolff: “He keeps on reminding me that he's 76 but, frankly, I think his gray hair is a con.” 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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