Blackstone Buys Stake in Calif. Hotel

CORONADO, Calif. ( TheStreet) -- Blackstone Group ( BX) is looking to take on a major stake in Hotel del Coronado, near San Diego, for $100 million.

Strategic Hotels & Resorts ( BEE), a real estate investment trust that owns and asset manages upper upscale and luxury hotels, currently owns 45% of the hotel, while KKR Financial Holdings' ( KFN) Kohlberg Kravis Roberts owns 40% and privately held KSL Reports owns the remaining 15%.

Hotel del Coronado

Under the terms of the deal, buyout firm Blackstone and the existing owners must pool enough capital to reduce the beachfront hotel's current debt -- including $610 million of commercial mortgage-backed securities and $18 million under its revolver -- to $425 million, according to a report in the Wall Street Journal.

Blackstone would contribute $100 million of new capital, and convert into equity a piece of just under $20 million of Del Coronado's mezzanine, the paper said.

That debt was supposed to be due at the middle of this month but was extended to Feb. 9. The report said KSL Resorts would continue to manage the property, which is near the North Island Naval Complex.

JPMorgan analyst Joseph Greff said he was looking forward "to the final details of this deal as it relates to BEE."

He speculated that Strategic Hotels' reduced final ownership percentage could be around 22.5%, and questioned the dollar amount of Strategic's additional required equity investment, which could be 45% of the $100 million. Greff also looked to determine the final capital/ownership structure of the property, guessing it could be 22.5% of the property's $425 million debt.

"Our initial take on the Del announcement, and making our own broad assumptions, indicates that this restructuring is that it would be accretive to our estimated net asset value ," Greff said, adding that "we also look forward to news on the outcome of negotiations related to the $180 million of debt on the Fairmont Scottsdale coming due in 2011."

Back in October of last year, Blackstone bought $300 million in debt on 14 hotel properties it had previously sold to Columbia Sussex for $1.4 billion.

In 2007, just before the recent credit crisis and economic recession, Blackstone famously bought out Hilton Hotels in a $26 billion leveraged buyout.

Blackstone shares were 2.5% lower at $15.72 ahead of midday on Friday. Strategic Hotels & Resorts tumbled 5.1% to $5.63.

-- Written by Miriam Marcus Reimer in New York.

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