The Return of Hope

The Return of Hope

A $100 million construction project is underway in Sarasota - an area that's recently been quicksand for large developments. It's a story of determination, mixed in with some luck.

Sarasota developer Brent Virkus is fully prepared for raised eyebrows and quizzical looks when he tells people he's actually putting together a $100 million construction project for a luxury fractional ownership hotel on the Gulf Coast.

Even when he takes people to the actual site on Siesta Key - where a ceremonial groundbreaking took place June 19 - some still shake their heads in confusion, especially since it's one of the only big-ticket projects in the area to have received financing over the past year, much less come out of the ground.

But once Virkus goes over the details of the project, to be called Hyatt Siesta Key Beach, most of the simmering doubts turn into backslaps and gratitude.

To be sure, a groundbreaking is still a long way from a grand opening, but at the least, Virkus and his team of high-powered partners from across the country have been able to bring something back to the area's morbid residential and commercial construction market: Hope.

"I think we've really hit on something that people want," Virkus says. "In an economy where nobody's doing anything, we've had a tremendous amount of interest."

Now the trick for Virkus and his list of powerful partners, which, in addition to Hyatt includes the Carlyle Group, an $80 billion-plus Washington, D.C.-based private-equity firm and CapitalSource, a Chevy Chase, Md.-based commercial lending operation, is to turn the interest into closed sales.

The sales and marketing director for the project, David Lehrman, says he intends to do that by combining his pair of trump cards: location and luxury. He is setting up the project as the only place to buy into a high-end fractional ownership vacation home on Siesta Key, sandwiched between places like the Longboat Key Club to the north and the Ritz-Carlton Members Beach Club on Lido Beach to the south. The Hyatt could be open as soon as next summer.

"There's nothing like this on Siesta Key," says Lehrman. "That's become our biggest attraction."

The details and amenities aren't bad, either. The six-story building, to be built on the former site of the Sea Castle motel - next door to homes where Virkus, a Michigan native, spent family vacations as a child - is made up of 44 units. The sizes range from 1,865 square feet to 2,920 square feet and the prices, based on three-week or six-week stay agreements, range from $140,000 to $750,000. The interior design includes some of the top names in appliances and decor, including Sub Zero, Viking and Wolf.

The amenities are also designed around a first-class philosophy, including features such as twice-daily housekeeping services, babysitting and a private chef. Buyers can even ship their clothes in advance of their trip and find them pressed and in the closet when they arrive.

Sharing privileges

Lehrman and Virkus are nonetheless cognizant of the fact that in a struggling economy, it will take much more than sleek refrigerators and pillow mints to sell what could be a $500,000 rental summer home. "Our biggest obstacle," Lehrman says, "is the overall fear of the economy."

Lehrman would seem to be a wise choice to slay any fears his Hyatt superiors might have. He's a Hyatt Vacation and Residence Club expert, having previously led the company's sales efforts for fractional ownership resorts in Key West, Lake Tahoe and Puerto Rico. His most recent assignment before relocating to Sarasota late last year was at the Hyatt Vacation Club in Bonita Springs.

One of Lehrman's first steps upon taking the Sarasota job was to split the marketing budget into two distinct campaigns - one to reach buyers outside Florida, in places like the Northeast U.S. and Europe, while another was for targeting in-state residents. The in-state campaign has been further broken down to people in the local area and people outside Greater Sarasota.

The international campaign is Internet driven, with banner ads on high-traffic Web sites such as www.nytimes.com and www.wsj.com. The national sales pitch attempts to take advantage of the soft economy by presenting the Hyatt Siesta Key Beach as a relatively inexpensive alternative to buying a second home. Affordable luxury is the mantra, says Lehrman. Adds Virkus: "We believe people are less likely to buy a second home in this type of economic environment."

On a local basis, Lehrman is utilizing more of a grassroots approach, including putting on a summer concert series, holding open houses and taking out print ads in local publications. (The Observer Group, parent of the Review, has published several Hyatt Siesta Key Beach ads this summer).

Locally, Lehrman has also been pushing the project's tony beach club and spa, the Cabana Club. Hyatt is currently running a special incentive program, where buyers of a fractional ownership condo can get year-round use of the Cabana Club with no annual dues. So a local buyer might only stay at the resort for two weeks a year, but he would be able to utilize the Cabana Club year-round.

In other high-end resorts on the Gulf Coast, annual pool and club memberships can range anywhere from $30,000 to more than $100,000. Lehrman says eventually, when he hits a certain number of local sales, Hyatt will begin charging a fee for annual Cabana Club use.

One other perk Lehrman pushes, to any type of buyer, is the sharing privileges of Hyatt Vacation and Residence Club membership. Indeed a six-week Hyatt Siesta Key Beach purchase includes two weeks at one of 15 other Hyatt resorts and clubs nationwide, as well as certain hotels. A three-week purchase includes one week at another property.

'World's best beach'

Lehrman declines to say how successful the expensive advertising and marketing campaign has been so far. Both Lehrman and the Hyatt corporate office decline to release specific sales figures, past Lehrman saying he's already closed on "a bunch" of units.

Sales aside, the early story of the Hyatt Siesta Key Beach project is one of determination mixed in with some luck. From a determination standpoint, Virkus has been the force behind the project - although two years ago he never would have thought of it that way.

That's because in 2006 Virkus entered the Sarasota market with condo dreams. A one-time money manager and financial planner with Merrill Lynch in suburban Detroit, Virkus and a few partners spent almost $85 million to buy both the Sea Castle property and the former Gold Bank Plaza building in downtown Sarasota; the Sea Castle property cost about $35 million.

When the condo market collapsed mere months after the purchase though, Virkus and the Triton Cos., the development firm he moved from Michigan to Sarasota, were stuck with the properties. On the downtown purchase, Virkus has since decided to try to turn it into a luxury hotel.

But on Siesta Key, Virkus realized he would need a deep-pocketed partner who saw the potential of building a luxury resort in what's commonly referred to as a one of the 'world's best beaches.'

Difficult times

So Virkus began working his long list of contacts, just as the economy began sliding. His mantra became a contrarian play, hoping to get ahead of the competition by building when times were bad. Says Virkus: "The best time to develop something is when times are difficult."

That's where the luck part comes in play.

Turns out an executive with the Carlyle Group has been vacationing on Siesta Key for years. With $82.7 billion in assets, Carlyle is one of the largest private equity firms in the world. Its money has funded more than 600 companies across a wide spectrum of industries, including healthcare, aerospace and energy.

The connection with a top Carlyle executive earned Virkus an invitation to go pitch the project to a room full of company executives at its Washington D.C. headquarters - six blocks from the White House.

The meeting, held in early 2007, was tense. Says Virkus: "They were not shy about letting us know they are very, very selective about the projects they choose."

The Carlyle Group ultimately decided to take an interest in the project and that's when it really took off, Virkus says. Several other entities soon signed on, including Hyatt, CapitalSource and Sarasota-based Hoyt Architects. Sarasota-based Tandem Construction was hired as the lead contractor for the project, which is expected to bring about 500 construction jobs back to the market.

Finally, NextStar, a Steamboat Springs, Colo.-based lending company, was signed up to provide financing to potential buyers. Lehrman says bringing in a company like NextStar, which focuses exclusively on high-end fractional ownership projects, is a key selling component.

Virkus traces all the partners, as well as the early success of the development, back to his 2007 meeting in Washington. "If we didn't have Carlyle on the project," Virkus says, "then it probably wouldn't have come out of the ground."

REVIEW SUMMARY

Businesses. Hyatt Siesta Key Beach

Industry. Construction, development, tourism

Key. The developers of the luxury fractional ownership hotel project are trying to drive sales during the economic downturn.