Ski Slopes, Beachfront Suites and IRR: Private Equity Joins the Resort Crowd

Imagine the due diligence process: a stodgy MD stalking through some log-constructed mountainside lodge ticking off boxes, taking notes and e-mailing from a Blackberry; the MD is incongruently tucked into a suit among hordes of Toddy-sloshed snowboarders and skiers.

I can just imagine the e-mails: ‘Old fashioneds at the bar pass muster, although the youngster with the nose piercing has got to go;’ ‘Packed powder on much of the slopes, but we’ll have to improve snow machine presence toward the peak;’ ‘Bulldoze 25% more trails by the end of summer—we’ve got to get capacity up.’

It seems inevitable that in 2013, more private equity pros will be investing in a business where they’ve got some institutional knowledge: that is, upscale leisure and travel.

The most recent example features a relative newcomer to the luxury resort industry. Recently, Bain Capital struck a deal with AMResorts to provide the high-end resort operator with an equity investment to finance its expansion. With properties stretching from Mexico to the Dominican Republic to Jamaica—and with suite tabs going into the $4,000 range for a weekend—hopefully Bain execs can cop the company discount when they arrive.

While Bain represents a big new potential player in the luxury resort operations space, their executives are rubbing elbows with other premier PE firms. Here are some of private equity’s resort deals over the last 12 months:

-Perseus Capital Partners acquired Hotel de Trois Vallees from Lodges & Mountain Hotels in France, giving GPs a chance to hit the slopes

-The Carlyle Group invested in Hoteles y Clubs de Vacaciones in Baleares, Spain, where guests have an opportunity to hit the links. The firm also bought Behringer Harvard’s Lakeway Resort & Spa in Texas

-And Pegasus Capital Advisors acquired Six Senses Resorts & Spas in Bangkok, Thailand

Other big names to check in to deals in the resort space include Yucaipa Cos. (with an investment in New York), Oaktree Capital Management (Aspen, Colorado), as well as the usual suspects, firms with a dedicated presence in the industry, like KSL Capital Partners.

Is PE is spending more in the resort space? That’s a little tricky: our data lumps hotels starred one or five into the same group when assembling deal tables, meaning that buyers of a Super 8 chain are categorized the same as the Trois Vallees.

Private equity firms making real estate plays in other businesses might have an eye toward consolidating assets, breaking down inefficiencies and beefing up margins, but PE pros tell peHUB this is no way to approach a high-end investment like luxury lodges and resorts. LBO shops can’t treat resorts to the ‘strip-and-flip’ treatment; the next buyer will arrive at a property where there are no other guests.

“You don’t go into it with a mindset of ‘this has to generate more profit in the next four quarters,’” one source said. “It’s always about growing the successful aspects of whatever property you’re on; you go into it expecting to spend on improvements.”

*Tragically, peHUB racked up no expenses in the reporting of this column.

Image Credit: KSL Capital Partners’ Rancho Las Palmas in California.