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Vultures Dig into Luxury Resorts

Two unconnected deals announced this month show that well-funded private developers are taking advantage of the residential slump to bag ritzy residential sites to develop and hold until the market recovers.

Luxury destination club Quintess announced a $210 million equity commitment from an unnamed investor to pursue luxury residences and residential development sites around the globe. The transaction is the largest infusion of capital announced to date for a luxury destination club, according to the Broomfield, Colo.-based company, and is a cornerstone of its 10-year financing strategy to develop the largest portfolio of luxury homes in the world.

“There are certainly a lot of distressed properties out there,” says Ben Addoms, founder and executive vice president of Quintess. “Like every other investor, you don’t want to catch a falling knife, but it’s certainly easier for us to get in on the ground floor of five-star resorts.”

In an unrelated transaction announced this month Macfarlan Capital Partners, a privately owned Dallas investment group has purchased five resort communities in three states for approximately $181 million from Centex Destination Properties, a division of publicly traded Centex Homes (NYSE: CTX). When fully developed, the acquired portfolio will be worth about $1 billion, estimates Dean Macfarlan, founder and CEO of Macfarlan Capital Partners.

“We are getting tremendous value, irreplaceable locations and the opportunity to build a great brand,” Mcfarlan says. The assets are being re-branded under the name TerraMesa Resorts and the new owner has hired 135 former employees of Centex Hospitality Group and Centex Destination Properties to operate the company. Dallas-based Centex has sold nearly 30% of its resort and second-home communities, or five of 17 resorts, to Macfarlan.

The former Centex Properties resorts now overseen by Macfarlan Capital’s TerraMesa are The Hollows on Lake Travis and The Waters at Horseshoe Bay Resort, both near Austin; Pointe West in Galveston, Texas; Bear Lake Reserve in North Carolina; and South Peak Resort in New Hampshire. Terra Mesa will also oversee “V” at Lake Las Vegas, which Macfarlan previously bought from Centex.

The company learned the portfolio might be available in early 2006, Macfarlan says. Because the properties are 70% developed, the deal represents a good opportunity to complete the projects and realize a healthy return for investors in a few years when the luxury market regains its footing. At this point in the market cycle, buyers expect a bargain, so negotiating a favorable acquisition price was essential. “The resort owner that we’re trying to serve really is interested in value right now and wants to ensure they are getting the best value in their second home or investment,” Macfarlan says.

Like Macfarlan, Quintess executives say the high-end housing market is ripe for acquisitions by cash-laden investors. “There are exceptional opportunities to develop and acquire luxury real estate in the world’s finest destinations on very favorable terms,” says Quintess CEO Pete Estler.

Addoms describes Quintess as a country club consisting of houses and resorts around the world. Members pay annual dues to gain access to luxury homes with a concierge service, daily housekeeping and even an in-house staff, if desired. “We are a buy and hold investor,” he says. “We like to build from the ground up at those resorts, typically hold product for five to six years to benefit from appreciation and to let our members benefit from those properties.”

Quintess will use the new $210 million capital commitment to develop new businesses, to fuel mergers and acquisitions, and for real estate development projects. Just this week, the company announced a partnership with Miami-based Gencom Group to develop an enclave of multi-million-dollar beachfront homes on West Caicos, a private island within Molasses Reef, a Ritz-Carlton resort owned by Gencom Group. So far Quintess has developed or acquired a $300 million dollar portfolio of private homes around the globe, and the company’s 10-year goal is to grow the portfolio into the multi-billion-dollar range.

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