Mainland group agrees
to pay $78 million for
Embassy Suites

By Russ Lynch
Star-Bulletin

Signature Resorts Inc., a leading owner and operator of time-share properties, said today it has signed an agreement to buy the 413-unit Embassy Suites Resort at Kaanapali Beach, Maui, from a Japanese partnership for $78 million.

The price is about half the $151 million that a Japanese company paid for it in 1989, only months after it was opened at a development cost of $90 million.

The beachfront resort has been mired in bankruptcy proceedings since May 1996 and earlier sales deals have fallen through in a mess of lawsuits and countersuits.

Los Angeles-based Signature Resorts said the planned purchase is through a partnership of Signature, the Whitehall Fund of Goldman, Sachs & Co. and Apollo Real Estate Advisors L.P.

Signature is the managing partner. The company also owns a time-share resort at Poipu Beach on Kauai, 18 others on the mainland, two in the Netherlands Antilles and one in the U.S. Virgin Islands.

The transaction will need bankruptcy court approval. A hearing is scheduled for Aug. 7 in Honolulu. Signature expects the deal to close in the fourth quarter.

Subject to government approvals, Signature plans to convert part of the property into time-share units, operating 256 hotel suites and 157 time-share units of one and two bedrooms.

"We are especially pleased to have Goldman Sachs' Whitehall Fund and Apollo as our investment partners and to continue our investment strategy of purchasing high quality assets from Japanese institutions at favorable pricing," said Andrew Jody Gessow, Signature's co-founder and president.

Hawaii has already seen other examples of this trend of new investors paying highly discounted prices for luxury hotels that were developed or bought at high prices by Japanese interests in the late 1980s.

The latest, Embassy Suites, has had a checkered career but throughout its troubles it has remained open.

The 12-story resort hotel, built on a 7.5-acre site owned by Haseko Inc., opened for business in December 1998. The developer, a partnership known as Woolley/

Sweeney Hotel, sold it in June 1989 to Japanese-owned Abe International Ventures of Hawaii Corp.

In June 1992, it was sold for $92 million to Resorts Suites of Maui, a partnership controlled by Japanese investors. Hawaii developer Mike McCormack had a 10 percent interest through a company he controlled, which was named general partner.

Resort Suites filed for Chapter 11 bankruptcy reorganization in May 1996, listing debts of $151 million and assets of $80 million. Most of the debt is owed to Mitsui Trust & Banking Co., whose affiliate Mitsui Leasing holds a 9 percent interest in Resort Suites of Maui.

The bankruptcy filing came amid a flurry of legal actions and incomplete sales deals.

McCormack's group said it had offered to buy it in February 1996 for $76 million, joining with a Chicago investment trust. The proposal was rejected by Resort Suites' Japanese partners.

In March 1996, the Japanese partners agreed to sell it for $72 million to Eskimau Inc., a company headed by Japanese trading giant Itochu Corp., which also was involved in the Resort Suites partnership. Eskimau, in turn, tried to sell it to another group, West Maui Partners L.P., headed by former Haseko Hawaii Inc. executive Sam Kaneko.

That prompted the McCormack group to file suit claiming improper interference with its deal to buy the hotel. That suit is now in federal court.

Charges and counter-charges also were lodged in bankruptcy court. In May 1996, the bankruptcy court had an auction and Mitsui's offer of $78 million was the highest. Mitsui later said it had agreed to sell it for an undisclosed price to Eskimau Inc., the same Itochu-controlled buyer that had surfaced earlier. Bankruptcy Judge Lloyd King in June 1996 withdrew his approval of the sale to Mitsui.