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PARADISE VALLEY, AZ-The infusion of nearly $10 million from a new equity partner has positioned the owner of the Hermosa Inn to initiate a major upgrade and expansion of the historic 35-room asset. Spring Creek Development, headed by local investor Fred Unger, will spend $20 million to refurbish the rooms and public spaces, build a two-story main lodge with 14 more guest rooms and add a spa.

The boutique hotel, located at 5532 N. Palo Cristi Rd., was hand built in 1935 by cowboy artist Alonzo Megargee as his home and studio. Over the years, the adobe-walled property evolved into a guest ranch and later a small hotel. Various owners added a pool, tennis courts and several buildings with guest rooms. Unger and his wife Jennifer acquired the holding in 1992 and reopened it in 1994 after a full renovation as the Hermosa Inn. The main structure is listed on the National Register of Historic Places.

Unger says he has been planning the renovation for more than a year, but was unable to move forward with most of the changes until he brought in Phoenix-based Fountainhead Equity Partners, headed by Art Cunningham and John Hill. Fountainhead reportedly paid $9.7 million to acquire a 50% interest in the inn.

Cunningham says he invested in the project because it is an “irreplaceable asset.” He reports the local hotel market has recovered from a downturn and is gaining strength. The hotel occupancy rate for the Scottsdale/Paradise Village market averaged 69.9% last year while the average room rate was $160 per night, according to a report from the City of Scottsdale’s Economic Vitality Department. Rates at the Hermosa Inn range from $110 to $700 per night, depending on season.

But Cunningham emphasizes it was the quality of the property and its management rather than the improving market that attracted him and his partner to the deal. “Overall it was an investment in Hermosa Inn and not the general hotel market,” he tells GlobeSt.com, adding “let me rephrase that. It’s an investment in Fred Unger and the Hermosa Inn.”

Other proposed improvements include repairing pipes, expanding guest bathrooms, adding a small meeting room and redesigning the swimming pool area. Unger also plans to redesign the dining, bar and kitchen areas of Lons’ restaurant, for which Unger is the head chef. The last major improvements were in 2002 when a wine cellar and meeting space were added.

Oz Architects in Scottsdale is assisting with the expansion and renovation. Construction is set to start next summer. Hotel general manager Michael Gildersleeve anticipates a 10- to 12-month construction schedule during which the hotel will be closed. He says the restaurant, however, will remain open for dinner, but not lunch for most of that period, closing only near the end of the construction schedule to allow it to be redone.

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