The largest land transaction in the history of Orlando’s tourism market was registered in late December when Colony Capital drew $130 million for its 474 acres of property near Universal Boulevard.
The roots of that deal date back three and a half years, stretch as far as Los Angeles and New York, and wind back to CBRE Orlando‘s Land Services team, which utilized its global marketing capability to secure an offer from Universal Orlando at the nascent stage of what would have been a worldwide campaign for the property.
REPEAT BUSINESS
CBRE began advising Key Bank in mid-2012 on its role as loan servicer for multiple lenders that had written $150 million in mortgages to Georgia-based developer Stan Thomas, for nearly 500 acres he and a partner bought in Orlando’s tourism corridor in the mid-2000s.
At the time, Key Bank just needed CBRE Orlando’s help to keep tabs on the tourism corridor real estate market. But by mid-2014 Thomas had fallen into default, those lenders decided to sell the note, and CBRE’s New York-based note sales group was brought in.
In August 2014, Colony Capital, in partnership with a co-investment fund, paid $63.5 million to buy the non-performing mortgage note on Thomas’ properties from Key Bank. The note included 19 parcels totaling 474 gross acres with an aggregate UPB at the time (unpaid principal balance of the mortgages) of approximately $171 million, according to Colony’s Third Quarter 2014 earnings report.
“The value paid for those notes is really based on how much of a risk you’re taking,” said Robert McEwan, first vice president of Land Services with CBRE, whose Orlando team representing the Colony property would include Preston Hage and Jake Schrimsher.
“This was a note purchase that was fraught with issues — environmental and foreclosure difficulties.”
FURTHER INVESTMENT
After paying $63.5 million for the note in August 2014, Colony Capital would invest hundreds of thousands of dollars more over the following year to prepare the land for development or sale, and allegedly millions more to settle the foreclosure process with Stan Thomas.
There were attorney’s fees from more than a year of litigation in Orange County Circuit Court to foreclose on Thomas and his LLC affiliates that owned the property. That ended in late September, when the six remaining defendants reached an agreement with Colony. The cost of those fees and agreement couldn’t be confirmed, but may have been in the single-digit millions, sources with knowledge of the case tell GrowthSpotter.
More litigation costs came from a lawsuit in 2015 that Colony would win against IA Orlando Sand LLC, an affiliate of Illinois-based Inland American Real Estate Trust, which owns a 100-acre parcel along W. Sand Lake Road that was contiguous to the land previously owned by Thomas affiliates, according to Miranda Fitzgerald, land use partner at Lowndes, Drosdick, Doster, Kantor & Reed, P.A, who represented IA Orlando in the case.
IA Orlando had a cooperation agreement in place with the Thomas entities for a drainage plan for the entire property, which would have helped all parties share the cost of future drainage canal work.
When Colony took over the mortgage note in default by Thomas, it sued IA Orlando to avoid inheriting that cost-sharing agreement, and won, Fitzgerald said.
Colony also invested thoroughly in engineering, planning studies and environmental cleanup work on the property.
These added costs between August 2014 and December 2015 may have totaled a few million dollars for Colony Capital, but its eventual profit on the $130 million sale was likely in the range of $60 million.
THE PURSUIT
Multiple sources confirm that Universal Orlando officials began tracking the Colony Capital note in early 2015, performing due diligence on the property while they anticipated if and when the foreclosure would be affirmed by Orange County Circuit Court.
Once that foreclosure auction date was set on Sept. 29 for Nov. 18, conversations began between the founder and executive chairman of Colony Capital, Thomas J. Barrack Jr., and lead executives at Universal Orlando, which operates under NBCUniversal, a subsidiary of Comcast.
A Universal spokesman declined interview requests for this story.
Colony Capital and Universal officials discussed the property through October and November, leading up to the Nov. 18 foreclosure auction. When Colony won property rights in that auction with a bid of just over $500,000, the firm set a $130 million target price for the interested buyer in Universal. This was the figure that could preempt CBRE from taking the property through global marketing.
That number was below the $150 million-to-$200 million range publicized by CBRE’s preliminary marketing in late October. Privately, that higher value was only expected as the return if parcels were sold individually, after months of marketing was carried out.
“That was a decision Colony had to make, regarding the length of time they wanted to spend selling this,” McEwan said. “It could take two to three years to sell it all piecemeal. There would always be a discount off of the full retail for someone to buy it all and close at one time.”
GrowthSpotter reported on Dec. 1 that Universal Orlando had a contract in place to buy the 474-acre package owned by Colony Capital, based on six sources in Orlando’s real estate community and three Orange County commissioners who were told such directly by a Universal or Comcast executive.
The deal for $130 million was finalized days later, within the first two weeks of December. A quit-claim deed signed on Dec. 17 transferred ownership of the land to an obscure Delaware LLC named SLRC Holdings, with no indication of price.
Comcast officials confirmed on Feb. 3 that $130 million was spent on 475 acres of land in close proximity to a Universal theme park, though declined to confirm the exact location.
At $130 million for the 19-parcel package, Comcast/Universal has paid about $274,000 per acre, well below the $1 million or more per acre currently being asked for land on International Drive and Universal Boulevard.
Universal’s acquisition of the land came 12 years after its previous owner, Vivendi, sold it amongst 1,800 acres near Universal Boulevard to Stan Thomas for $70 million, per the Orlando Sentinel in December 2003. Universal had originally bought the land in 1998 from Lockheed Martin.
BOULEVARD GROWTH
Future development of the vast property by Universal will be preceded by a number of smaller developments along Universal Boulevard that have purchased or placed land under contract, prior to the Universal-Colony deal.
Estero-based ComTerra Development Group paid $10.14 million for 20-plus acres on Jan. 15 at the northeast corner of Universal Boulevard and Destination Parkway, where it plans 150,000 square feet of retail, dining and entertainment uses.
Topgolf paid $7.13 million on Feb. 3 for 11.8 acres on Universal Boulevard across from the convention center, where the company will invest a projected $20 million to build a 65,000-square-foot entertainment center. It will be joined by Georgia-based Andretti Indoor Karting & Games, which is expected to close in April on purchase of a nine-acre lot.
And New York-based real estate developer and manager Empire Equities is expected to close in the coming months on a 5.34-acre tract for a hotel to be located north of the Orange County Convention Center’s North Concourse, to be split off a 38.82-acre parcel owned by Orlando Equity Partners (OEP), an affiliate of Southwood Development Company in Atlanta.
A remaining 15 acres of developable land from that same OEP parcel are still being marketed by CBRE for a convention-level hotel with up to 1,500 keys, which was taken to market in June 2015. It’s the only property with a deeded right to build a pedestrian bridge over Universal Boulevard to the new convention center.
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