SAN DIEGO—Commercial real estate investment banking firm George Smith Partners has successfully arranged $95 million in construction financing for development partners of a new 317-room Montage-branded hotel in downtown San Diego's Gaslamp Quarter.

The Robert Green Company and Montage Hotels & Resorts are working to the develop the hotel, and and George Smith Partners' principal Malcolm Davies, announced the funding deal. The hotel will mark the launch of Montage Hotels & Resorts' newest hotel brand, Pendry, and will be called Pendry San Diego.

“This hotel project has been in the works for more than 10 years, with a variety of challenges to overcome,” explained Davies. “George Smith Partners worked extensively with The Robert Green Company and Montage Hotels & Resorts over the past 15 months to finally secure the construction financing they needed. This allowed the work to begin on this $138 million hotel development, which had its ceremonial ground breaking earlier this month.”

According to Davies, the development site originally housed a condemned cigar store and parking lot, and was initially being considered by another developer as the site for a new Marriott Renaissance hotel. During the recession, this interest waned, and an eminent domain issue emerged with the site's former cigar shop owner. These factors contributed to the complexity of this proposed development, as well as its lengthy pre-development phase.

The Pendry San Diego will be located on 5th and J streets in Downtown San Diego, three blocks from the San Diego Convention Center.

“This development site is one of the final remaining gems in San Diego's Gaslamp Quarter,” Davies explained. “On the surface it could be assumed that financing a project in such a strong location in today's market would be seamless. On the contrary, the combination of the economic downturn and the site's eminent domain issue, coupled with the fact that the development will be part of a private 99-year ground lease, made identifying the right capital providers a challenge that required deep expertise in navigating the capital market.”

Davies noted that the development partners were seeking financing that would provide 70% of the proceeds necessary for the construction of this luxury hotel.

“As a former developer, I was fortunate to be able to draw upon my past experiences developing properties in the San Diego region in order to help bring this financing to fruition,” he explained. “Despite so many competing variables that could have distracted lenders from the value of the hotel, I was able to work with our company's network of lenders to educate, negotiate and ultimately secure our client the financing they needed to get the project into the construction phase.”

Davies notes that this was a highly structured deal, with a capital stack that included both debt and equity.

The secured non-recourse financing closed at a 70% loan to cost, with a 36-month term. The structure allows the loan to subordinate to new financing even if that financing does not compensate for the entirety of the construction loan.

Planned for completion in the Summer of 2016, the Pendry San Diego will be a twelve-story, 317-room luxury hotel, including 36 suites. The hotel will also feature several restaurants and bars; an outdoor pool, spa, grill and fitness area on the third floor deck; as well as ballroom and various meeting rooms.

Instant Insights /

George Smith Partners Arranges $95M for Gaslamp District Hotel Project

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