Dallas-based firm wins Maui resort with bid of $100M

Three real estate investment firms, including one formed by the co-founder of a company that created Hot Pockets, competed to buy a former Ritz-Carlton condominium and time-share resort on Maui at a Thursday foreclosure auction that resulted in a $100 million sale.

The bidding, which opened at $58 million, rose more than 20 times for the former Ritz-Carlton Club and Residences at Kapa­lua Bay project, where most of the 146 condos and time-share units remain unsold almost four years after completion.

An affiliate of Dallas-based Lantern Asset Management, which invests in time-share properties and is owned by Centerbridge Capital Partners, won the contest held outside the Hono­lulu courtroom of Circuit Judge Bert Ayabe. The other contenders were California-based Westbrook Management and David Merage, who heads Consolidated Investment Group. Merage and his brother co-founded Chef America Inc., the maker of frozen foods including Hot Pockets that they sold to Nestle in 2002 for $2.6 billion.

Lantern, represented by Andy Mitchell, dueled exclusively with Merage after the bids neared $90 million. After Lantern bid $100 million, Merage conferred with Westbrook’s representative but did not bid again. Ayabe later confirmed the sale.

A new owner not troubled with delinquent debts is expected to improve operations and sales at the property now known as the Residences at Kapa­lua Bay. A new management firm, Colo­rado-based Timbers Resorts, took over Jan. 1.

The previous owner was the project’s developer, a partnership between Maui Land & Pineapple Co., The Ritz-Carlton Hotel Co. and Exclusive Resorts LLC. The partners built the nine-building condo complex for $355 million on a 24-acre oceanfront site after demolishing the Kapa­lua Bay Hotel.

But in the run-up to opening in 2009, the project was troubled by the recession and financial market meltdown. In 2008 the project’s main lender, Lehman Bros., filed bankruptcy in a move that kinked up condo sales and construction.

Even though the developer managed to complete construction, sales languished due to the Lehman situation and a deteriorating real estate market. Later, financial constraints of the developer kept the project from a rebound.

Last June a group of lenders that largely replaced Lehman and were owed about $300 million filed a foreclosure lawsuit against the developer.

At about the same time, a group of condo owners sued the developer for allegedly breaching fiduciary duties. Then in July, Ritz-Carlton said it would resign its management role because operating costs were not being sufficiently funded.

The original developer managed to sell 28 of 84 condos and 177 of 744 interests in 62 time-share units.

Lantern now owns 56 residential condos that had been priced from roughly $4 million to $10 million, and 567 time-share interests that had been priced between $350,000 to $850,000.

The time-share units are also referred to as “fractional condos” because each unit is shared by 12 buyers who each get three weeks of annual use. The remaining 16 weeks were reserved by the management company mostly for rent or use by time-share club members.