Frenchman's Reef (the “Property”) has secured $84 million of financing through the municipal bond market, with the issuance of Hotel Occupancy Tax Revenue Bonds and Economic Recovery Revenue Bonds (“the Bonds”) issued by the Virgin Islands Public Finance Authority. Funds managed by affiliates of Fortress Investment Group acquired the Property in April 2021.
“We’re pleased with the success of our investment in Frenchman’s Reef, and are pleased to bring our real estate expertise – from investment through operations – to the Property,” says Ali Elam, Managing Director at Fortress Investment Group.
“As the largest resort in the US Virgin Islands, and one of the largest employers on the island of St Thomas, we knew that our investment in Frenchman’s Reef could bring substantial economic gain and employment opportunities to the island,” added David Hammerman, Chief Operating Officer of Global Real Estate Equity at Fortress Investment Group. “We are grateful to the Virgin Islands Public Finance Authority and Government for their support through this project and Bond offering, and look forward to working with them to ensure the ongoing success of Frenchman’s Reef.”
Piper Sandler served as Sole Underwriter on the bond offering. Bradley Langner, Managing Director in the Hospitality Finance Group at Piper Sandler, added, “We achieved strong pricing on this bond offering, and significant oversubscription from investors. Overall, the Bonds were 11.7x oversubscribed, with $978 million of orders for $84 million of bonds.”
The Property is a newly renovated 486-key resort located on 20 acres in St Thomas in the US Virgin Islands, featuring two interconnected hotels: The Westin Beach Resort Spa at Frenchman's Reef and Buoy Haus, Autograph Collection.
Use of Proceeds
The Bonds will be used to reimburse CREF3 USVI Hotel Owner, Inc. for the reconstruction, renovation and upgrades of the Property. CREF3 USVI Hotel Owner, Inc. is owned by funds managed by affiliates of Fortress Investment Group (“Fortress” or the “Hotel Developer”).
Property Renovations
In September 2017, Hurricanes Irma and Maria caused significant damage to the Property. Funds managed by affiliates of Fortress acquired the Property in April 2021 and spent $311 million to complete the renovation of the resort that had been started by the prior owners. A total of $468 million ($963,000 per key) has been invested in the complete rebuilding and rebranding of the resort, which opened in two phases starting in May 2023.
Post-renovation, the resort has been up-branded from a Marriott to a dual-branded Westin and Autograph Collection, transformed into a world-class resort destination with unparalleled food and beverage and amenity offerings, and significantly fortified against future weather impacts as it was rebuilt to Miami-Dade hurricane building standards.
The Bond Offering
In August 2022, the Legislature of the U.S. Virgin Islands ratified a Hotel Development Agreement between the Government of the U. S. Virgin Islands and the Hotel Developer – under which the Virgin Islands Public Finance Authority would issue bonds to reimburse the Hotel Developer for the reconstruction, renovation and upgrades.
The $84 million in Bonds have settled this week:
- $64.9 million of Designated Hotel Occupancy Tax Revenue Bonds (Frenchman's Reef Hotel Development Project), Series 2024A
- Secured by a lien on the Property’s Hotel Room Occupancy Taxes
- Bonds pay a 6% coupon, with a 5.75% yield
- Triple tax exempt to bond buyers
- $18 million of Economic Recovery Fee Revenue Bonds (Frenchman's Reef Hotel Development Project), Series 2024B
- Secured by a lien on the Property’s Economic Recovery Fees
- Bonds pay a 9% coupon, with a 9% yield
- Double tax exempt to bond holders (exempt from state and local taxes, but subject to federal taxes)
About Fortress Investment Group
Fortress Investment Group LLC is a leading, highly diversified global investment manager. Founded in 1998, Fortress manages $48 billion of assets under management as of June 30, 2024, on behalf of approximately 2,000 institutional clients and private investors worldwide across a range of credit and real estate, private equity and permanent capital investment strategies.