The breakdown: Inside Virgin Hotels’ $330M vision for South Beach and how it vanished

first_imgShare on FacebookShare on TwitterShare on LinkedinShare via Email Share via Shortlink HFZ’s Ziel Feldman and Virgin Group’s Richard Branson, with renderings for what would have been Virgin Hotels’ transformed property at the Shore Club. (Credit: Getty Images)Virgin Hotels had been looking for the right redevelopment opportunity in South Beach for years, and appeared to have found it a few months ago in HFZ Capital Group’s Shore Club.An offshoot of Richard Branson’s Virgin Group, Virgin Hotels created a proposal to purchase the 309-key beachfront hotel for $235 million, The Real Deal has learned. It put together a 46-page offering document likely aimed at potential investors. The booklet included detailed financials about the new hotel, along with renderings on how the property would be transformed, at a cost of around $100 million.Miami-based Virgin Hotels, led by CEO Raul Leal, targeted closing on the property in the first quarter of this year, with construction to start in February 2021, according to the document, dated February 2020. The redesigned hotel at 1901 Collins Avenue in Miami Beach had an expected opening date of August 2022.But discussions were sidelined and the timeline abandoned, as the coronavirus began to spread and eventually led to the statewide shutdown of nonessential businesses. A Virgin Hotels spokesperson this week sounded an optimistic note about the future, but with tourism only beginning to creep back and financing opportunities slim for hotel acquisitions, it is unclear whether negotiations will resume.Hotels were ordered to close in Miami-Dade County in late March, and began to reopen June 1. The Shore Club is expected to reopen June 26.While South Florida real estate prices have dipped since March, most sellers aren’t desperate enough to meet buyers’ rock-bottom expectations, industry pros say. And while few hotels in Miami have traded since the pandemic upended the economy, the long-term impact on property values is still a question, brokers say. But like Shore Club, a host of deals that were in the works before Covid-19 are on hold or have been canceled altogether.“The facts are we have not seen a deal,” said Scott Berman, a principal at PwC, referring to the state of the overall hotel market. Berman, a specialist in the U.S. hospitality and leisure sectors, said current market conditions have made it difficult to bring together both parties for a sale. “A deal requires a willing seller and a willing buyer,” he said.A strong bidVirgin Hotels’ original proposal for Shore Club could be considered fairly high, given that HFZ hadn’t completed any major renovations since acquiring the property in late 2013 for about $175 million. Last year, HFZ boosted its loan on the Shore Club from Mexican bank Inbursa by $40 million to $182 million.HFZ, which declined to comment, had planned to redevelop the hotel into a 67-unit luxury condo, but canceled plans and returned buyers’ deposits due to the slow condo market in 2017. Management company Sbe has been operating the hotel since it acquired Morgans Hotel Group in 2016.The Virgin Hotels spokesperson said the company knows “the asset well” and “feels confident that Virgin Hotels can bring a unique offering to the city. However, we do not have a current transaction.”The $235 million offer broke down to about $760,500 per hotel room. In addition, Virgin would potentially spend over $100 million on improvements: $75 million to $85 million on building upgrades and furniture, fixtures and equipment; and another $23 million on IT costs. The company hired Coral Gables-based Fullerton Diaz Architects and David Chipperfield Architects to design plans for the property, which included a “Shag Room” lounge and a space called the “Funny Library.”According to the offering, Virgin expected to raise the Shore Club property’s net operating income to $31.9 million in its first stabilized year, which was projected to be 2025. That’s compared to an estimated NOI of $4.9 million in 2019.Industry sources say Virgin Hotels has been holding out for the right opportunity in Miami, where the parent company has been ramping up its presence through Virgin Trains (also known as Brightline), Virgin Voyages, Virgin Atlantic and Virgin Holidays. Virgin Voyages, the Plantation, Florida-based cruise line, was supposed to begin operating out of PortMiami in April, but that has been delayed.Virgin Hotels announced last year that its first Miami hotel will be at a mixed-use project in Brickell, which will include a co-living component. But it was still searching for a flagship Miami Beach site.It opened its first property in Chicago in 2015, in San Francisco in February of last year, and in Dallas in December, according to the proposal. It has seven projects under development to open over the next four years, for a total of more than 3,100 hotel rooms.“What makes Virgin an interesting buyer is that they have very distinctive brand requirements,” said Max Comess, managing director of Hodges Ward Elliott in Miami, who is not involved in the deal. “There were very few hotels they could actually buy because their program is very regimented.”The company may have made an above-market offer on the Shore Club because there are few properties that fit its criteria, he said.“Considering the investment they’ve made in Brightline, in the airline, and now this hotel brand, they really have to be down here in Miami,” Comess said. “They have that brand equity.” Share via Shortlinkcenter_img TagsHotelsMiami Beachlast_img