Sunstone acquires the Montage Healdsburg Resort for $265M

Sunstone Hotel Investors Inc. has acquired the fee-simple interest in the 130-room Montage Healdsburg in California’s Sonoma County for $265 million from affiliates of Ohana Real Estate Investors. The selling price comes out to more than $2 million per key for the newly constructed luxury resort, which was completed in December 2020.

“Montage Healdsburg is a spectacular resort, ideally located in one of the most sought-after and highest-rated leisure destinations in the U.S.,” said John Arabia, president/CEO, Sunstone. “The resort, which took over 15 years to develop, is a perfect example of long-term relevant real estate and its addition elevates the overall quality and growth prospects of our portfolio. Leveraging our industry relationships, we acquired the resort on an off-market basis and at a discount to what it would cost to develop today. The acquisition is consistent with our stated tactics of acquiring LTRR in the early phases of a cyclical recovery and putting to work a portion of our excess liquidity, all while maintaining financial flexibility and access to capital to fund incremental external growth. Additionally, we are funding 25% of the transaction with attractively structured perpetual preferred equity that is being issued directly to the seller that aligns our interests and gives us additional optionality.”

The acquisition was funded from cash on hand and through the direct issuance of $66 million of perpetual preferred equity. Upon stabilization, Sunstone expects the resort to generate a 6.0%-7.0% net operating income yield on total invested capital.

Montage Healdsburg is a 258-acre resort situated in California’s wine country. Designed using sustainable development practices, the environmentally friendly resort sits lightly within a hillside setting so as not to disturb the area’s natural landscape, according to Ohana. The resort’s amenities include multiple pools, a full-service spa and indoor-outdoor dining options, including a multi-level main restaurant and outdoor bar and grill overlooking the resort’s vineyards.

The resort sits adjacent to the separately owned Montage Residences Healdsburg, which will include 40 to-be-built luxury homes that will be eligible to participate in the optional turn-key resort rental program. Ohana will continue to own and be responsible for the development and sales of Montage Residences Healdsburg.

“This sale reflects the strong interest from investors in best-in-class, leisure-oriented resorts as the hotel industry begins to recover from the effects of the COVID-19 pandemic,” said James Cole, head of asset management at Ohana. “The City of Healdsburg and Montage have been incredible partners throughout the development process of this truly unique resort, and we look forward to continuing to collaborate with them. Sunstone is a well-respected, institutional owner of hotels, and we look forward to their ownership of the hotel as we complete the build out of the 68 private residential units.”

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