Glenmont Capital, Peachtree embark on distressed assets strategy

DAYTONA BEACH, FLORIDA An affiliate of Glenmont Capital Management LLC, in a joint venture with an affiliate of Peachtree Hotel Group, has acquired the 96-key Holiday Inn Daytona Beach LPGA Boulevard in Daytona Beach through a deed in lieu of foreclosure agreement with the prior owner.

This transaction represents the first of several planned acquisitions for the joint venture in the market of distressed notes secured by newly built hotel properties located in secondary cities throughout the United States on a discounted basis.

“These assets often represent the newest, best-quality product within their submarket and are typically already generating positive cash flow and have the potential to recover to substantially higher levels of cash flow as the market recovers,” says Joseph C. Smith, principal of Glenmont Capital Management. “Fundamentally, there is nothing wrong with these properties, but the in-place cash flow is often insufficient to cover debt service due to excessive leverage and weak market conditions. Given that the construction loans secured by these assets typically have full personal recourse guarantees, borrowers are incentivized to turn over the keys to note holders in exchange for a waiver of their personal liabilities.”

Consistent with the business plan, the venture recently acquired the newly constructed Holiday Inn Daytona Beach LPGA Boulevard following its off-market purchase of the US$7.6 million non-performing first mortgage loan encumbering the asset. At approximately US$47,500 per key, the venture’s acquisition price represented a 60% percent discount from the total development cost less than two years after its completion.

Holiday Inn Daytona Beach LPGA Boulevard is a 96-key full-service hotel that opened in May 2009. Located on a 3.48 acre site at the intersection of Interstate 95 and LPGA Boulevard, the property features 2,635 sq. ft. of meeting space, a restaurant, fitness center, business center and an outdoor pool and Jacuzzi.

“Together with Peachtree Hotel Group, we were able to negotiate the highly discounted purchase price from the lender through an off-market transaction due in large part to our preexisting relationship and Glenmont’s strong reputation within the hospitality and lending communities for closing quickly on an all-cash basis,” Smith says. “By acquiring the hotel at a discount, installing an institutional quality hotel management company to operate the property, and capitalizing on the Daytona Beach hotel market’s nascent recovery, we expect to achieve opportunistic returns despite our conservative investment approach, which did not involve the use of leverage.”