Patience pays off for LionGrove’s first US asset

SCOTTSDALE, Arizona — LionGrove has been looking to expand its hotel portfolio into the U.S. for the past few years, but the company had to kick a lot of tires and kiss a lot of frogs until it finally found its prince of a deal.

Last week, the Puerto Rico-based firm announced that it had acquired the 177-key Adero Scottsdale Resort, Autograph Collection, in Arizona from Fountain Hills, Arizona-based Palisades Resorts for an undisclosed price. The property was in receivership for over a year, so the process was complicated, said LionGrove CEO Andro Nodarse-León. But he said the patience paid off.

“We’re very disciplined as an investor and so we are very careful and very focused on leaving room for error when we make investments and not assuming that everything in life turns out to be an A-plus sort of scenario, and then an A-plus sort of execution, and then somehow how you get to a high teens investment return,” he said.

Nodarse-León said his company’s conservative underwriting was one reason it took so long, but another was LionGrove’s specific focus on the Sunbelt and specifically properties in Florida, Texas and Arizona. That meant the bidding was fierce.

There’s a lot of competition in those markets, and sometimes assets get bid up beyond where we feel it’s the right level of risk and reward to make a trade.

Andro Nodarse-León

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“There’s a lot of competition in those markets, and sometimes assets get bid up beyond where we feel it’s the right level of risk and reward to make a trade,” he said.

Nodarse-León said there were times when LionGrove made an all-cash offer very close to the ask, only to be outbid by another all-cash offer that exceeded the asking price.

“Sometimes it’s the competitive dynamic that drives it. Sometimes it’s our own conservatism that drives it,” he said. “At the end of the day, we want to do transactions that are going to be successful.”

That means quality over quantity of deals, which requires a lot of patience.

“We do want to grow and we want to keep scaling,” Nodarse-León said. “We’re going to have to just keep kissing a lot of frogs and we’re going to have to keep kicking a lot of tires, but we’ll keep scaling.”

Inside the deal

The property, which was previously known as the CopperWynd Resort before a massive renovation and expansion in the late 2010s, reopened in October 2020 after a $100 million investment and renovation.

In December 2023, the property was placed under the control of a receiver after Palisades Resorts failed to make its monthly loan payments to its lender, VMC Finance 2021 HT1 Ltd., which is a subsidiary of Minneapolis-based Värde Partners.

Nodarse-León wouldn’t disclose the price of the asset but did say LionGrove was making $15 million in renovations to the property (it was appraised at $92.4 million in 2021). He said the process took time but was “right down the middle of the fairway” regarding the type of asset they love.

“It is going to be getting a whole breath of fresh air,” he said. “It is going to be a better property on the other side of the investments we’re going to make.”

LionGrove is already operating the asset and will remain open during the renovations. Light work will be done on the rooms, and most of the renovations will be done on the villas, the spa and other parts of the property to help reposition it as a wellness-oriented destination. The renovations will also expand Adero’s F&B footprint, which is another staple of LionGrove’s other assets in Puerto Rico, and expand the meeting and event space to better accommodate groups and weddings.

Last week, LionGrove announced it acquired the Adero Scottsdale Resort in Arizona.

Mispriced opportunities

When Hotel Investment Today first spoke with Nodarse-León in October 2023, he spoke of LionGrove’s desire to expand into the U.S. As the company has continued to pursue deals, Nodarse-León said the bid-ask spread has improved over the past 15 months and he sees the market gaining some velocity.

“In the first half of that window of time, there was a greater bid-ask spread and a greater preponderance of deals that would come to market and the deal wouldn’t get done and would ultimately get pulled because nobody would get to the ask,” he said.

Nodarse-León said a gap still remains in the market, but he’s optimistic about improvements in 2025.

“I think it’s narrowing and 2025 is promising when it comes to that,” he said. “Certainly, if we begin to see further rate reductions from the Fed, which obviously is a big question mark, then velocity will proportionally begin to increase.”

LionGrove pursues what it calls “mispriced opportunities” when looking for assets. The problem, Nodarse-León said, is that they are usually elusive.

There aren’t a lot of mispriced opportunities. If that were the case, you would see even greater deal velocity and the markets would be quick to arbitrage that out.

Andro Nodarse-León

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“There aren’t a lot of mispriced opportunities,” he said. “If that were the case, you would see even greater deal velocity and the markets would be quick to arbitrage that out.”

While Nodarse-León said LionGrove has seen a decline in unreasonable expectations, that doesn’t mean they have totally disappeared.

“If things are mispriced… or the asks are still too high compared to the reality of where deals can get financed, that’s just owners not wanting to take a mark on an asset or feeling like they can wait,” he said.

Nodarse-León said a quality asset like the Adero Scottsdale Resort being in receivership created a more complicated situation, but the complexity didn’t scare LionGrove away.

“When you run into a situation where there is the receivership opportunity or things like that, you’re going to find more noise in there,” he said. “We are a group that rolls up its sleeves and is willing to do the extra work over the longer haul. Sometimes, these processes that are more opportunistic and quasi-distress are going to take longer.

“Adero was more complicated, and therefore, does that mean that it leads to a somewhat better valuation than if it were not? Yes, but I think it was priced appropriately in the context of the totality of its realities, including the complexities of the process.”

In terms of its pipeline, LionGrove is still largely focused on potential assets in the U.S., although it is pursuing one potential deal in Puerto Rico, too. However, it will not necessarily only focus on one asset at a time.

“The new incremental element is a focus on portfolio type of transactions,” he said. “There’s a portfolio (of four assets) that we’re underwriting currently that is across three different states, all of them in the Sunbelt, and we would love being able to do that.”