Information on the Target

Frenchman's Reef, located on St. Thomas in the U.S. Virgin Islands, is a newly renovated resort property comprising 486 keys situated on 20 acres. The property features two interconnected hotels: The Westin Beach Resort Spa at Frenchman's Reef and Buoy Haus, an Autograph Collection hotel. Acquired in April 2021 by affiliates of Fortress Investment Group, the property underwent extensive renovations, rebuilding following significant damage from Hurricanes Irma and Maria in September 2017.

Since the acquisition, Fortress has invested a total of $468 million in the complete reconstruction and rebranding of the resort, which opened in phases starting in May 2023. Enhanced amenities and offerings have transformed Frenchman's Reef into a premier resort destination, designed to withstand future weather impacts by adhering to Miami-Dade hurricane building standards.

Industry Overview in the U.S. Virgin Islands

The hospitality and tourism sector is one of the most significant industries in the U.S. Virgin Islands, contributing substantially to the economy through employment and revenue generation. With its stunning beaches, rich culture, and diverse marine life, the islands attract millions of visitors annually, funding various local businesses and service sectors. The hospitality industry, especially after the pandemic, has seen a pronounced need for modernization and renovation to enhance guest experiences and maintain competitive positioning.

The U.S. Virgin Islands government has consistently invested in infrastructure and amenities to support tourism growth. In recent years, initiatives aimed at promoting sustainability and resilience in tourism have gained momentum, particularly in light of the region's vulnerability to natural disasters. The cooperation between government entities and private investors is crucial for achieving these objectives, making strategic investments in property renovations essential for the overall recovery of the industry.

Moreover, as travel demand increases, the competition among resorts in the Virgin Islands has intensified. Properties that can offer unique experiences and high-quality service are better positioned to attract tourists. Hence, the renovation of Frenchman's Reef aligns with broader trends necessitated by changing traveler preferences and heightened expectations.

The Rationale Behind the Deal

This financing deal, which secured $84 million through the issuance of Hotel Occupancy Tax Revenue Bonds and Economic Recovery Revenue Bonds, aims to reimburse CREF3 USVI Hotel Owner, Inc. for the costs of reconstruction and upgrades completed at the resort. Fortress Investment Group recognizes the economic potential of Frenchman's Reef, given its position as the largest resort on the island of St. Thomas and as a core employer within the community.

The bond offering provides substantial funding necessary for continuing the enhancement of the property's infrastructure, ensuring long-term operational sustainability and the ability to deliver exceptional guest experiences. This proactive approach not only increases profitability for the investors but also supports local employment and economic stability in the region.

Information About the Investor

Fortress Investment Group LLC is a prominent global investment manager, founded in 1998, with approximately $48 billion in assets under management as of June 30, 2024. The group serves around 2,000 institutional clients and private investors worldwide, with a diverse portfolio across credit, real estate, private equity, and permanent capital investment strategies. Fortress prides itself on utilizing its extensive expertise in real estate investment and operations to maximize value for its stakeholders.

With a solid track record of successful investments in various sectors, Fortress aims to leverage its real estate knowledge to drive operational improvements and elevate the performance of assets under its management. The acquisition and renovation of Frenchman's Reef exemplify their strategic commitment to creating long-term value and sustainable economic growth.

View of Dealert

Based on the context of the investment and the strategic moves made by Fortress Investment Group, this deal around Frenchman's Reef appears to be a sound investment opportunity. The extensive financial commitment in renovations and the proactive use of bond financing reflect a robust strategy aimed at revitalizing a significant asset in a competitive market.

The property's upscale transformation to a dual-branded Westin and Autograph Collection hotel strengthens its positioning within the hospitality landscape of the U.S. Virgin Islands. Its compliance with modern building codes for hurricane resilience further enhances its attractiveness to tourists, ensuring ongoing operational viability amidst climate challenges.

Furthermore, the substantial oversubscription of the bonds indicates strong investor confidence in the project and its potential returns. With the government’s support and increasing demand for high-quality accommodations in the region, Fortress Investment Group is well-placed to reap considerable returns on their investment while simultaneously contributing positively to the local economy.

Overall, this investment signals a positive trajectory for both Fortress and the U.S. Virgin Islands hospitality sector, given the critical timing of the renovations aligned with post-pandemic recovery efforts. As travel resumes and tourism strengthens, the implications for Frenchman's Reef are likely to be favorable.

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