Who Owns This Gem?

Who Owns This Gem?

When Shannon Hotel Group acquired the Longboat Key Club, it had the help of some of Wall Street's savviest and most endowed investors. Meet the owners.

By Matt Walsh

Editor

When W. Shane Eagan, Thomas A. Rasmussen, Thomas R. Holmes and Laurence R. Smith, the partners who owned Shannon Hotel Group Inc., purchased the Longboat Key Club for $25 million in 1990, they obtained an $18 million loan from what was then NCNB National Bank.

The remainder - the equity required to buy the club and resort - came from the four partners and a rich investor group in New York City, known as Loeb Partners Realty & Development Corp. Together, the four partners and Loeb formed a new company, Key Club Associates, Limited Partnership, with Loeb as the general partner, and contributed about $8.2 million in equity, according to public records.

And so began a 13-year partnership in which one of New York City's more revered names on Wall Street and in the investment world became the financial backbone and controlling partner of the most valuable real estate asset on one of the most valuable barrier islands in all of Florida.

It's a partnership that has paid off well. The partners' investment is easily worth more than 12 times the original $8 million investment - and that's conservative. Based on public documents that were part of an initial public offering prospectus issued in 1998, the partners recapitalized their investment in the Key Club for a purchase price of $60 million. Assuming a 10% annual increase - and that's conservative based on Longboat real estate values - the Longboat Key Club and Resort at Longboat Key Club today could be worth at least $96.6 million. Or just say an even $100 million.

Asked in a recent interview in Shannon Hotel Group's Longboat Key headquarters whether the Key Club is for sale, Rasmussen responded succinctly: "No."

In fact, he said, "We got a good laugh recently. There was a rumor going around that we were going to sell the Harborside golf courses for $15 million. That would only be the down payment.

"Assets like this just aren't out there.," Rasmussen said. "They just don't make this kind of property anymore."

Perhaps that's why the Longboat Key Club for the past dozen years has been the only resort property in Loeb Partners' vast real estate portfolio. The company owns and manages more than 12 million square feet of income-producing real estate, mostly retail centers and commercial office buildings stretching from New York to Florida to Oregon to California. Over the past 35 years Loeb Partners Realty has acquired, financed, managed and advised on more than $3 billion of real estate investments. For context, all of Longboat Key's real estate is valued at slightly more than $4 billion.

Loeb Partners Realty's corporate bloodline is rich. Its predecessor was the real estate investing arm of Loeb Rhoades & Co., which at one time was the fourth-largest investment banking firm in the United States. When the principals sold the investment banking unit in 1979, they kept its real estate business. According to company information, Loeb Partners Realty "acquires, repositions, advises on and manages real estate assets on behalf of a select group of major domestic and foreign pension funds, insurance companies, high net worth individuals and investment groups."

Among Loeb Partners' largest investors are C.V. Starr Co. Inc., whose founders also started American International Group Inc., one of the largest insurers in the world; and Abercromby Property International, whose partners include Barclays Bank Pension Funds, Friends Provident Life, the Shipbuilders Industries Pension Fund and high net worth individuals from Switzerland and Hong Kong.

But the roots of Loeb Partners' investors are family members and executives associated with patriarch Henry A. Loeb, one of the founders of Loeb Rhoades. If you look at the table of Key Club Associates' limited partners on this page, most of them are relatives of Loeb or partners and executives in Loeb's successor companies.

At the top of Key Club Associates and Loeb Partners' Realty is Joseph Lesser, a Midwesterner who earned his business and law degrees at the University of South Dakota. In his 70s, Lesser has been the president and chief executive officer of Loeb Partners Realty since 1968. Lesser did not return GCBR's calls.

Lesser decided to invest in the Longboat Key Club after Holmes, one of the partners in Shannon Hotel Group Inc., approached him when Shannon was negotiating with Arvida/JMB in the late 1980s to purchase the resort and golf club. Holmes, now a Longboat Key resident and chairman of two Massachusetts manufacturing companies, among other investments, says he had a previous business relationship that gave him access to Lesser and Loeb.

While Holmes' connection helped, Rasmussen says Lesser was also familiar with the Key Club another way: Henry Loeb, who died in 1998, was a member.

Even though Loeb Partners is the general partner of Key Club Associates, which means it's ultimately responsible for the operations and performance of the Key Club, Loeb Partners' ownership stake actually is minor. According to recently filed documents with the town of Longboat Key, Loeb Partners owns only 1% of Key Club Associates; 1% of LLK Associates, a one-third owner of the club; and 1% of Shannon Partners Realty, a two-thirds owner of the Club.

That's not to say Loeb doesn't benefit from its position. As general partner it receives management fees and distributions from the Key Club's operations. According to a 1998 Loeb public offering circular, Loeb Partners receives lease payments from the club. Part of the partnership agreement also entitles Loeb to receive a portion of the Key Club's revenues - provided the club exceeds certain undisclosed targets.

And Loeb Partners' receives management fees. According to 1998 audited financial statements, Loeb received 3% of Key Club Associates' total revenues in 1995 through 1997, or $2.9 million. In addition, the partnership paid out $5.1 million as capital distributions to its shareholders during that same period.

With these fees and other operating expenses, the Longboat Key Club still has operated profitably. According to the audited statements for the years ending 1995 through 1997, Key Club Associates produced the following for its owners: operating profits of $2.9 million, $3.6 million and $3.7 million on revenues of $30.25 million, $32.25 million and $34.65 million - operating margins between 9% and 11%. After interest expenses, however, those profit margins shrank to between 5% and 7%.

And note this: While the value of the Key Club's real estate is appreciating for its investors, Key Club Associates is not a growth business. Rasmussen estimates the company's 2004 revenues are likely to be about $33 million - $1.5 million less than in 1997. At the same time, as reported in GCBR last week, Key Club Associates, Limited Partnership is facing a $20 million capital investment to maintain the property's high-end value.

LONGBOAT KEY CLUB OPERATIONS

(Most recent data available)

REVENUES19961997

Hotel$14,588,551$14,255,577

Golf, tennis, social memberships7,584,4148,462,056

Food and beverage5,050,2605,220,952

Golf3,231,8823,388,629

Tennis372,227$1,209,055

Fitness center382,4841,278,803

Conference services413,931213,481

Other food, beverage178,699206,517

Other income445,795422,180

Total revenues32,248,24334,657,250

OPERATING EXPENSES

Hotel3,688,9674,013,996

Food and beverage4,730,5775,352,706

Golf3,444,7973,571,977

Tennis668,552687,908

Fitness center300,483509,198

Conference services375,508371,920

Other food, beverage85,65684,625

Unit owners' distributions6,606,3516,569,350

Depreciation, amortization1,319,6071,723,819

General and administrative7,344,8788,024,095

Total expenses28,565,37630,909,594

Operating income3,682,8673,747,656

Interest expense1,436,8891,730,266

Net income2,245,978$ 2,017,390

LOEB PARTNERS' REALTY PORTFOLIO

OFFICE PROPERTIESSquare feet

Riverview CenterMenands, NY1,062,000

Bank One CenterNew Orleans, LA1,005,000

Mainplace Mall & Office TowersBuffalo, NY995,000

L'Enfant PlazaWashington, DC865,000

498 Seventh AvenueNew York, NY828,000

63 Madsion AvenueNew York, NY797,000

200 Madison AvenueNew York, NY650,000

BMDC BuildingHuntsville, AL390,000

1401 H StreetWashington, DC358,000

16 East 34th StreetNew York, NY336,000

Winewood Office ParkTallahassee, FL330,000

529 Fitfth AvenueNew York, NY270,000

2Wall StreetNew York, NY193,000

The Edwards BuildingDenver, CO187,000

38 Chauncy StreetBoston, MA130,000

444 SeabreezeDaytona, FL130,000

24 West 57th StreetNew York, NY100,000

20 East 46th StreetNew York, NY89,000

37 West 57th StreetNew York, NY73,000

GT&E BuildingPortland, OR66,000

RETAIL & STORAGE PROPERTIES

Ainbinder-Bramalea (5 shopping centers)Southwest1,250,000

Cross County CenterYonkers, NY1,000,000

Carson MallCarson, CA872,000

Laguna Hills MallLaguna Hills, CA800,000

Woodland Hills MallWoodland Hills, CA600,000

Santa Rose MallFt. Walton Beach, FL500,000

Bellair PlazaDaytona Beach, FL366,000

MarketplacePhiladelphia, PA302,000

Sunshine MallSouth Daytona, FL270,000

Cedar HillsJacksonville, FL265,000

Kendall Value and Sunset StripKendall, FL257,000

Promenade MallPort Charlotte, FL215,000

Pine Street Shopping CenterOcala, FL209,000

Shoppes at St. Lucie WestSt. Lucie, FL201,000

Tyrone GardensSt. Petersburg, FL195,000

Easton Commons Shopping CenterHouston, TX192,000

International Drive Value CenterOrlando, FL187,000

Sunshine CenterGainesville, FL178,000

Midlothian Shopping CenterRichmond, VA170,000

Ladera Shopping CenterLos Angeles, CA165,000

Golden Triangle Shopping CenterMt. Dora, FL154,000

Hillwood Shopping CenterNashville, TN150,000

Twenty MallGuilderland, NY150,000

Town Squire Shopping CenterGlenmont, NY130,000

Westgate SquareOrlando, FL129,000

K-Mart CenterPeru, IL109,000

North Torrance Shopping CenterTorrance, CA103,000

Ramblewood PlazaCoral Springs, FL92,000

Gale SquareHacienda Heights, CA90,000

Burbank Tower CenterBurbank, CA87,000

La Mancha PlazaPhoenix, AZ84,000

Lakeland SouthLakeland, FL65,000

Town PlazaSt. Petersburg, FL65,000

Valencia CenterLaguna Hills, CA64,000

Ralphs MarketsMission Viejo, CA58,000

Kirby Richmond Shopping CenterHouston, TX55,000

Winter Park Prop. (3 Retail. Aps)Winter Park, FL53,000

Canton Village Shopping CenterMarietta, GA50,000

3222 CenterFt. Pierce, FL45,000

Public Storage FacilityAlameda, CA85,000

Public Storage FacilityGlendale, CA51,000

PS AlamedaAlameda, CA84,218

PS GlendaleGlendale, CA50,690

OTHER PROPERTIES

United Park City Mines Co.Park City, UTLand Development

Longboat Key ClubLongboat Key225 Rms

Eagle Ridge Inn & ResortGalena, IL465 RmsOne Dartmouth PlaceDenver, COApts., 423 Units

Park Hill LaneMenands, NYApts., 569 Units

Presidental EstatesGuilderland, NYApts., 128 Units

Source: Loeb Partners Realty