REIT, Partners Strike New Deal for $209M Canyon Ranch Portfolio

Melvin and Enid Zuckerman and Jerrold Cohen picked up 52% of all assets in the newly formed operation, Canyon Ranch Co., and Crescent owns the balance. Prior to the pact, Crescent owned 100% of Canyon Ranch Tucson and Canyon Ranch Lenox in the Berkshires, 50% in the Canyon Ranch SpaClub at the Venetian Resort in Las Vegas and 30% of the Canyon Ranch license, Keira Moody, the REIT's investment relations director, tells GlobeSt.com. The Zuckermans and Cohen owned 100% of Canyon Ranch SpaClub aboard the Queen Mary 2 and the Gaylord Palms Resort in Kissimmee, FL plus Canyon Ranch Living Community, a seven-acre development under construction in Miami.

The transaction, announced during the REIT's third-quarter earnings call in November, culminates nearly a year of restructuring the company in a simplified form with expansion clout. "Canyon Ranch has been a winning investment for us since we invested back in 1996," John C. Goff, Crescent vice chairman and CEO, says in the release. He says the simplified structure "not only aligns the interests of all owners, it also creates a growth platform for brand expansion opportunities."

Crescent reported $38.3 million of the $91.9 million in proceeds gleaned from the sale was used to reduce debt from its previous investment in Canyon Ranch assets, which were assigned a gross value of $209 million or $89 million more than the REIT invested nine years ago.

According to Crescent's release this morning, the newly formed company secured a $95-million, non-recourse, interest-only loan with a 10-year term at a 5.94% fixed rate. The launch also was seeded by $110 million in preferred membership units on a mandatory redeemable basis through an exclusive private placement offering with Bear, Stearns & Co. Inc. Each unit pays an 8.5% dividend in the first seven years and 11% for the final three years of the loan. The units are convertible into 25% of Canyon Ranch Co.'s common equity.

As a result of the layered deals, there is still about $50 million of investment capital waiting to be tapped by the company. "There are definitely talks about where to take this brand," Moody says. "There's a lot of opportunity out there." Mel Zuckerman was named CEO of the new company.