SAN ANTONIO-In its first hotel equity investment, Principal Real Estate Investors LLC has joined forces with Miller Global Properties LLC and Marriott International Inc. to develop the 1,002-room JW Marriott San Antonio Hill Country Resort and Spa. Construction began last week on the 800-acre project, with completion set for the first quarter of 2010.

Prices for similar developments have ranged between $70 million and $100 million. In addition to the guest rooms, amenities and a 36-hole golf course designed by Pete Dye and Greg Norman, the Marriott on Evans Road will have 61,000 sf total of ballroom space; 40,000 sf for the exhibit hall and 10,000 sf of pre-function space. Austin Commercial is the project’s general contractor, and HKS Inc. is the architect. Both companies are headquartered in Dallas.

Principal and Miller Global are providing approximately 40% of the equity for the project, which is part of the 2,600-acre master-planned Cibolo Canyons. A consortium of banks will supply the remaining construction funds.

Though the partnership is a first for Principal and Denver-based Miller Global, the companies’ management has been in communication with one another for the past two years. “Given this is Principal’s first equity investment in a hotel, we really liked the idea that our partner was experienced in this type of thing,” comments Rod Vogel, who is managing director of equity production for the Des Moines-based Principal.

Vogel and James Fitzgerald, managing director of hotel investments with Principal, say they also felt comfortable with the Marriott brand name, as well as the Bethesda, MD company’s decision to develop and run a destination resort in the Hill Country. “Marriott did a lot of research on this, and determined that 1,000 rooms was the right size for something like this,” Fitzgerald comments. “Marriott’s belief is that meeting planners representing a KPMG or American Medical Association don’t have a lot of venues that are destinations, and that can hold a lot of people.”

Fitzgerald tells that Principal likes the idea of more hotel investments, pointing out that hotels have been a high-performing asset class. “We feel that, going forward, hotels will continue to do well, especially as they push average rates,” he says.

Both men say that Principal is talking with Miller Global about more joint ventures. Vogel says the two companies are examining potential office and hotel assets, possibly in California.

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