The Trump Ocean Club International Hotel and Tower Panama has a new majority owner, but the Trump name is sticking around.
CBRE, on behalf of the hotel's developer, Newland International Properties Corp., has completed the sale of the majority interest in the hotel, which opened in 2011, but has been beset by difficult dynamics, including a market inundated by new supply.
It certainly didn't help Newland, which in July 2013 emerged from a Chapter 11 reorganization plan, restructuring $220 million in debt. The hotel, part of a mixed-use development that also encompasses 600 residential units, retail, office and a 75,000-square-foot casino, cost $295 million to develop.
The entire hotel has 369 condo units that are part of a rental pool. Newland had previously sold 167 of the units, with the remaining 202 having now been sold off to Ithaca Capital Investments, an investment company comprised of family offices from the United States, Latin America, Europe, Asia and Panama, for $24.5 million. The stake also included all the hotel amenity components, as well as 30,000 square feet of restaurants and bars, five oceanfront pools, parking rights and 21,000 square feet of meeting rooms and ballrooms.
At 70 stories, the structure is also the tallest building in Central America.
And while it's a prime Class-A building, selling the hotel portion came with its obstacles. Namely, a name. CBRE began marketing the hotel portion earlier this year in January, and fielded multiple bids, including from North America, Latin America and Asia. There was no buyer interest, reportedly, from Russia.
"It was a very complicated asset and the sale process was made a bit more challenging by the branding given the political climate in the U.S during our marketing period," said Paul Weimer, an SVP in CBRE Hotels's Miami office, who worked on the deal.
Similar to other hotel asset sales, the property was encumbered with the Trump brand, meaning the new owner could not remove the brand unless it paid what is frequently a steep penalty. In this case, Trump Hotels is not just the brand, but also the operator of the hotel.
CBRE started marketing the hotel at the same time Donald Trump was elected U.S. president; around the same time that his administration declared that he had, in fact, had the largest crowd ever for an inauguration. Period.
"There were polarized opinions from different buyers," Weimer said.
Panamanian Prime
Still, the property overshadowed the name on it—it is arguably the best quality asset in Panama City.
In its offering memorandum, CBRE pointed to myriad investment highlights, including potential growth of top-line revenue with increased demand from the expansion of the Panama Canal and international airport; a hotel with a RevPAR index of 124 percent; a stable market due to a U.S. dollar denominated economy, which shields investors from currency exposure; and low cost of labor in Panama, which allows for better cost control.
Still, key performance indicators at the hotel were trending down, according to the offering memo. In 2015, occupancy at the hotel hovered around 50 percent with an average rate around $186. A year prior, occupancy was 800 basis points higher. What Weimer referred to as "temporary oversupply" was impacting the hotel and others in the market the ability to thrive.
"A lot of hotels opened between 2010 and 2016, and it was a lot of rooms for market to absorb," Weimer said. "There was a lot of concern from investors saying, 'Panama City is growing, but is it growing fast enough to keep up with all these hotels.'"
Other hotels in the market include the Waldorf Astoria, Le Meridien and InterContinental.
Adding a layer of complication to the sale was the mixed-use component. "Certain buyers have to get their head around that," Weimer said. "It's not just like buying a standalone hotel. There are cost-sharing expenses and allocations."
Within the development there is a casino owned by one person, an office building owned by another person, retail stores that are owned by different entities and 600 apartments that are owned by some 500 different people. "For some buyers, it's just too much complication," Weimer said.
Before finding a buyer, the development had been the site of resident and condo owner unrest. Trump Panama Condominium Management LLC, which managed the property, was accused of running up more than $2 million in unauthorized debts, paying its executives undisclosed bonuses and withholding basic financial information from owners, according to an Associated Press report. Trump and his team vehemently denied the claims and in 2015 reportedly demanded as much as $75 million from condo owners, alleging that its directors wrongfully fired the company as the administrator managing the building.
Ithaca Capital, meanwhile, appears unconcerned by the disquiet. “We are excited to welcome such an iconic property to our investment portfolio and we look forward toward working with the local team, the hotel operator and the Panama community, to establish the property as the premier hotel in the country and the entire region," said Orestes Fintiklis, managing partner of Ithaca Capital Partners.
"We sourced a buyer who understands and recognizes the tremendous potential of the property and was able to patiently work through a multitude of issues," added Weimer.