The Resort at Napa Valley

BACKGROUND

In 2013, FarWest entered into a joint-venture arrangement with The Capbridge Group KK, a Tokyo-based diversified equity platform. Base in San Francisco, the partnership ("Capbridge-West") focuses on the acquisition and/or development of real estate assets in key US gateway cities.

As the venture's development partner, FarWest, with its in-place networks and its extensive real estate experience in Hawaii and California, sources investment opportunities and provides all day-to-day project management for the partnership. 

For its part, Capbridge brings to the partnership its deep bench of capital relationships and real estate experience throughout Asia and provides the venture with management oversight and access to both pursuit and investment capital.

In 2014, FarWest sourced two major hospitality development opportunities for Capbridge - the first located in Maui, Hawaii ("The Maui Lu") and the second located in Napa, California ("The Resort at Napa Valley").

The Resort at Napa Valley - Aerial Site Plan

The Resort at Napa Valley - Aerial Site Plan

THE RESORT AT NAPA VALLEY

The Resort at Napa Valley is situated on 304 acres at the south end of the Napa Valley. Its eastern boundary sits immediately off of the Valley's main traffic artery, Highway 29, and is bounded on its western edge by the Napa River. 

The overall Project site can be described in two parts: to the east, a fee-simple portion comprised of five parcels totaling 71-acres; to the west, a single leasehold parcel totaling 233 acres. 

The fee-simple portion is fully entitled for 379 hotels rooms, a 50,000 SF conference and meeting center, plus a broad list of hotel-related amenities and support facilities. 

The leasehold portion of the site is fully entitled and permitted for a championship 18-hole golf course but can also be used for agricultural purposes (such as vineyards) under the existing zoning and entitlement.

The Resort at Napa Valley - Design Imagery

The Resort at Napa Valley - Design Imagery

 
 

ACQUISITION

FarWest secured this off-market opportunity through one of its strategic relationships by negotiating the assumption of an existing Purchase and Sale Agreement between the seller and another buyer.

Under this arrangement, Capbridge-West controlled the property and all of its in-place entitlements and pre-paid exaction fees (principally affordable housing fees and water service agreement fees) at a below-market purchase price.

CAPITALIZATION

The property's acquisition capital, as well as the majority of the Project's required development equity, was provided through a commitment from an offshore Asian investment concern. Capbridge provided the introduction to the investment group and FarWest pitched the opportunity, negotiated the term sheet, and finalized the operating agreement.

The balance of the Project's development capital is being provided through a combination of EB-5 equity and traditional construction financing.  Until such time that the entire capital stack is in place, FarWest has negotiated a land-loan bridge financing commitment through a Canadian hard-money lender. Appraised value at the time of the land-loan commitment was nearly 2x Capbridge-West's acquisition price at closing.

The Resort at Napa Valley - Design Imagery

The Resort at Napa Valley - Design Imagery

DESIGN

Originally designed in the 90's by the previous ownership as a single monolithic structure, FarWest engaged renowned San Francisco architect, Howard Backen (Backen Gillam Kroeger), to redesign the Project as a more contemporary, 'Napa-appropriate', lifestyle resort. This included, amongst other things, dispersing the entitled density across the Project site into smaller, more appropriately scaled buildings, bungalows, gardens, and vineyards.

The Project's redesign was undertaken in close coordination with the County of Napa Planning Department to ensure that the new plan was recognized by the County to be well within to the spirit of the originally approved entitlements.

Additionally, it was decided, given the Project's close proximity to three 18-hole golf courses, that the 233-acres designed and approved for a championship golf course, will likely be planted as chardonnay and pinot noir grape vineyards.

This provides not only a beautiful arrival and backdrop to the resort, but also serves as an active and authentic amenity for the resort guests with a winery, amphitheater, farm-to-table garden, and an extensive network of bike and walking paths. To that end, FarWest engaged Jack Neal & Sons, one of the Valley's most respected vineyard management and consulting firms, to help guide the design and execution of the vineyard and winery components.

The Resort at Napa Valley - Massing Study (Backen Gillam Kroeger)

The Resort at Napa Valley - Massing Study (Backen Gillam Kroeger)

ENTITLEMENT VALUE

Entitlements for non-agricultural land uses in the Napa Valley are nearly impossible to come by. As a result, the Project's entitlements were a key driver in Capbridge-West's valuation and acquisition of the Project.

The lack of entitlements in the Valley is due to the following: the grape growing and winemaking industries are the lifeblood of the Napa Valley. In 2016, they represented $13B of economic impact to the Valley; the Napa Valley visitor industry represented $1.6B. And while the vintners and winemakers understand that travelers want to visit the Valley, tourism, along with its impact on traffic and demand on land resources for services, is largely seen as an impediment to the vintners and, to some extent the winemakers, conducting their business.

To stave off this growing impact, in 1968 the Napa Valley Ag Preserve was put in place, protecting nearly 90% of the Valley's land exclusively for agricultural uses. This has served to protect the Valley's wine-related industries while severely limiting the entitlement of land for anything other than agricultural (grape/wine) uses.

As result, preserving the Project's in-place entitlements is paramount. To that end, in 2007 prior ownership took three important steps: they paid the County's affordable housing fee; they paid the Water Service Agreement fee; and, they broke ground and built the foundation for a single, unfinished building. The County has reassured Capbridge-West that these three events effectively vested the entitlements.

The Resort at Napa Valley - Design Imagery

The Resort at Napa Valley - Design Imagery

HOSPITALITY MANAGEMENT

Historically, the hotels in the Valley have not been globally or nationally branded. That said, with ADRs and occupancy rates well above most market averages, nearly every global brand has been actively circulating in the marketplace for years looking to rebrand or repurpose an existing asset with one of their flags.

In their feasibility report, Capbridge-West's hospitality consultants, PKF/CBRE, asserts that the Project, upon completion as a destination luxury lifestyle resort, could be uniquely positioned to command high ADRs and stabilized occupancy with three years of delivery.

This is underpinned by their belief that, with its 379 rooms, the Valley's largest conference center, and a location which is so readily accessible to San Francisco, the Project should have exceptional demand from both the weekday business/group customers as well as from the weekend transient and wedding customer.

PKF/CBRE believes that given this demand profile, the Project could benefit from the drawing power and robust reservation and points systems of a global brand. That said, they also believe that a smaller luxury boutique brand could readily manage that demand as well, but at a more regional level.

Accordingly, Capbridge-West reviewed proposals from ten global and boutique hospitality management companies for the flagging and/or management of the Project. That list has been short listed to three finalists - one global brand, and two boutique brands. A decision as to final selection is pending.

The Resort at Napa Valley - Design Imagery

The Resort at Napa Valley - Design Imagery