UPDATED: December 1, 2015 9:58 AM — Buoyed by the seemingly endless wave of investment over the past two years in property along International Drive, Jones Lang LaSalle's marketing campaign for the CoCo Key Water Resort lasted just a few weeks through late May and June before Fort Lauderdale-based InSite Group emerged as the likely suitor, a lead executive with the buyer and the property's broker told GrowthSpotter Monday.
Previously owned by Orlando-based CNL Financial, the hotel on North I-Drive was one of 67 properties in CNL's Lifestyle Properties REIT that were set to be marketed for sale as that portfolio neared its liquidity event this year.
Gregory Rumpel, managing director of JLL's hotels and hospitality group, says he knew going in to the marketing campaign's debut in May that InSite was among a handful of investors for which Orlando's CoCo Key made sense.
Formal marketing for the property began in the third week of May, with Rumpel making one of his first proactive calls to InSite. Roughly five weeks later a verbal agreement was reached at June's end, notably faster than the standard eight or 10 weeks typically committed to a hotel's marketing campaign.
"I probably spoke to 30 to 40 groups within that first week, and InSite was one that responded quickly," Rumpel said. "I've sold InSite five properties, (JLL) has sold for them and to them. So I have a good idea of what they look for."
As co-owner of the B Resort & Spa near Downtown Disney, InSite Group knew well the Orlando hospitality market's growth in recent years, and was drawn to the CoCo Key because of its location, cash flow and future potential, said Ronald Tencer, vice president of acquisitions and development.
"This transaction enabled us to achieve our investment criteria by acquiring the property at a discount to replacement cost, with in-place cash flow and additional value potential," Tencer said. "We continue to remain upbeat on Orlando and other Top 25 markets. The Orlando growth in the last several years has been impressive, and the I-Drive corridor is undergoing significant capital improvements, which should create additional growth opportunities."
A contract was reached within the first two weeks of July, with an ample due diligence period to follow. Word traveled fast in local hotel real estate circles. GrowthSpotter reported on July 13, with the help of industry sources, that InSite was lined up to buy the property.
The 391-key hotel finally sold on Nov. 18 for $15.1 million to InSite Group, a value of $38,618 per key.
"It was a low cost per key, relative to new construction options, and offered repositioning and strong fundamental real estate value," Rumpel said. "Some groups like to buy cash flow, and some like repositioning. InSite was the right profile buyer for this property."
Despite the rapid verbal agreement and contract in July, the four-month duration for due diligence and closing lasted roughly one to one-and-a-half months longer than closing normally would for a deal of this size. A number of circumstances for both the buyer and seller led them to agree on a longer timeframe, Rumpel said.
"When you select a buyer, price is the No. 1 driver, but if you can't get to closing it doesn't matter," he continued. "I have a good track record with (InSite), and knew that when they go under contract they follow through. I could tell CNL that these guys have a proven track record of closings in this asset type, which helped."
The 45-year-old, two-story hotel was heavily renovated in early 2010 for conversion into the CoCo Key Water Resort, but the property's structure now limits how many hospitality brands would accept being used there by a new owner.
That limitation for repositioning the existing structure applies to the CoCo Key and many properties of similar age on I-Drive, prompting more sales to have greater focus placed on base land value, i.e. what a parcel's acquisition cost and building demolition cost will be.
InSite Group has no plans for drastic changes to the property, Tencer said. He declined to confirm how many years are left on a flag agreement with CoCo Key Resorts, except to say that, for the time being, there are no plans to make a brand change.
Unless a contract with the flag and management firm has been renegotiated in recent months or since the acquisition, multiple sources in hospitality real estate have told GrowthSpotter they were informed earlier this year that the property's contracts could be terminated within 60 days, allowing a new owner to free up the asset for broad changes.
Tencer said Monday that InSite's plan for the resort is to enhance the guest experience, and continue to remain with the CoCo Key affiliation. He said previous commentary that the property could be rebranded as a smaller version of the B Resort was incorrect.
The company plans for some immediate upgrade investments at the property, though Tencer declined to project an investment budget for the coming year.
Editor's Note: This story and headline were updated to correct the timeframe when marketing for the property began and when verbal agreement was reached, after further review of personal records.