Inside the Grand Hyatt Miami Beach construction loan

MIAMI BEACH, Florida – Just underneath the wire, South Florida developers Terra and Turnberry on April 11 closed on a $392 million construction loan to develop the Grand Hyatt Miami Beach. More than five years in the planning stages by the developers and supporters, an 800-room, 17-story property adjacent to the Miami Beach Convention Center is now shoveling and set to open in about 26 months.

Aly-khan Merali, president and chief financial officer of Turnberry, told Hotel Investment Today it took a lot of effort to reach the finish line on the loan arranged by Eastdil Secured, including sweating out the commitment from the lender, TYKO Capital, a multi-billion-dollar commercial real estate private equity and private credit investment management platform backed by Elliott Investment Management. But Merali said TYKO was true to its word, especially considering current market volatility.

“They had plenty of opportunities to make material changes to this deal as the world was changing,” Merali said. “Until the day we closed, they didn’t take a single opportunity to do so… Never once did I get that call. I expected it, candidly. I always worry when closing a loan... I know they were stressed. I know they were having calls. I know they were having meetings. I could sense it, but they never put that on us at all.”

So, onward Terra, Turnberry, Hyatt, TYKO and the city of Miami Beach march on a project that will support the convention center and give the long-term holding developers a hotel that can lean into both the convention and leisure business cycles.

Aly-khan Merali, Turnberry,

Merali said loan-to-value sits at around 50% with a bit of creep on the loan-to-cost. The project is aided by a $75 million grant awarded through the Miami Beach Redevelopment Agency in late 2024.

Designed by Arquitectonica’s Bernardo Fort-Brescia, the luxury property connected to the convention center will feature 12 floors of guest rooms, including 52 suites with views of Miami Beach, along with four floors of meeting and ballroom spaces.

Getting any type of new construction hotel deal done today is no small feat. So, Hotel Investment Today talked with Merali to learn more about how the deal came together and how the developers plan to move forward during an intrepid economic moment.

Hotel Investment Today (HIT): Considering the development costs, what is the projected ROI on the project?

Aly-khan Merali: Our general contractor has been running through iterations for 18 months with us. We’ve covered costs. They’ve made commitments, as well. So, it’s been a true partnership on the cost side with costs inflated probably over 40% since we started our project five years ago.

It’s a very efficient project built on a on a tight pad and a tight podium, and that’s helped on the efficiency side. There was that grant support that came in at $75 million and was able to defray some, but not all, of that cost inflation that we incurred…

We’re very conservative in our underwriting approach. There’s a tremendous amount of sponsor equity in this as well new capital invested. Then we had the county grant come in. So, from an LTV perspective, there’s some 50%. LTC [loan-to-cost] has a bit of creep, but it’s an efficient build.

Aly-khan Merali

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We started this financing process late last year. We were active in signing term sheets in November and December. So, it was still quite a prolonged close… We’re very conservative in our underwriting approach. There’s a tremendous amount of sponsor equity in this as well new capital invested. Then we had the county grant come in. So, from an LTV perspective, there’s some 50%. LTC [loan-to-cost] has a bit of creep, but it’s an efficient build.

There are still a lot of discussions about costs, candidly. How many amenities do we need? How elaborate do we need to be? But it’s a very self-sufficient convention center hotel and we have 90,000-plus square feet of meeting space, luxurious ballrooms with natural light and big work areas that bring the public into our space. So, we didn't cut corners…

In my view, the profit is there, so to speak, as soon as we open. We’re not selling. This tends to be a long-term hold for us, like all of our assets. So, I think we stabilize within the first 18 months, depending on where the economy is and where the world is.

HIT: What's the state of the Miami hotel business?

Merali: Speaking specifically to this asset, we spent a lot of time thinking about whether or not we should do this deal. Can we add value? Does it meet our ethos of place making? Is it community supported? Is there something unique about it?

There’s very little new hospitality product in Miami Beach and a lot of products have been converted to residential. A lot of other product has enough demand from the leisure space not to require servicing the convention center. So, our thesis here was, it’s a leisure market, but we’re building a corporate product that supports and is attached physically to a bridge to the convention center. It’s one of the few new luxury hotels opening that can take group business in Miami Beach.

The Grand Hyatt Miami Beach will be connected to the convention center.

It’s an efficient new group product with luxury positioning for leisure on the weekends. That’s why we moved forward with this project.

Candidly, it’s also very good for the community on the job creation side. The affiliation with the community and the convention center is something that is important to us as a company and as a partnership. So, that was another part of our reason for pursuing this.

HIT: What are you doing to keep the project on budget and on time?

Merali: This is a critical key project for us. General contractor Balfour Beatty has been excellent to work with. We retained their team 12 months ago, and so they were able to give us commitments over those last 12 months. We’re working with Benjamin West on the purchasing of the FF&E, which is 12 months out from purchasing. Tariff discussions have been heavy, but we have enough time to position our purchasing and line up our suppliers to meet our deadlines, and we’re actively working on that…

Hyatt has been an excellent partner. This has gone all the way to the CEO level. As you’d imagine, there’s been involvement from other top business teams.

So, what we’re doing is creating flexibility.

I received a birthday gift recently, and it said my catch phrase, ‘options have value.’ So, we’re trying to keep our options available, and we’re trying to push opportunities. So, whether that’s purchasing and shifting locations, or responding to different group trends and patterns, depending on where we want to layer in early to offset leisure. Hyatt’s team is coming in this week to discuss things like this. They’re already allocating resources to the project.

HIT: Any tips to the investment community for getting loans like this across the finish line?

Merali: There was great collaboration and communication. TYKO is a new relationship for us after Terra closed with them right before this. But we selected them as lender as they have a tremendous amount of hotel acumen, and they’d close deals in Miami Beach.

David Martin (Terra CEO) and I would talk every Sunday at 8 p.m. and strategize for the week ahead, and then we would touch base during the week. We were flexible. We bent on certain items but didn’t break, and the lender did the same. When everybody’s doing that, and so did Hyatt, everyone feels like we’re working well towards a smart deal and a smart outcome, which is what our focus was.

I received a birthday gift recently, and it said my catch phrase, ‘options have value.’ So, we’re trying to keep our options available, and we’re trying to push opportunities.

Aly-khan Merali

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There were minor items that we didn’t let catch us, and the lender was the same. For example, control provisions on retail leasing… We own and operate Aventura mall. We’re the top retailer in the county. We’re not asking you for feedback or guidance or advice. But you know what? They wanted a seat at that table, and it was important to them in the underwriting. We said, subject to these terms and conditions, you’re welcome to be at the table. And in the same regards, on their side, we had a quick timeline, and we wanted quick approvals, and they gave us a quick approval, because that was our big concern… The joke was at the closing dinner that there was only one moment that somebody lost their temper during this closing and that’s not a bad thing in a four-month outcome with all these moving parts and tariffs. Everyone really collaborated throughout the process.

Also, our team has redeveloped and repositioned $1 billion of hospitality in South Florida, and that’s been very important. Turnberry has 3,000 employees in the hospitality business alone. So, there was a lot of interaction and discussion about pro formas, segmentation, revenue management. That was time well spent, but that was more stringent than I’ve ever seen. And TYKO is an intelligent hotel investor. So, they had good questions. They wanted to be on certain calls, and we welcomed it.

In addition, the city of Miami Beach, their full support team all the way through to members that helped renovate the convention center, partnered with us on a daily basis. We had weekly calls with them, monthly get togethers. They pivoted as needed. They pushed through items as needed. They’ve been tremendously supportive. And they felt a lot of pressure on this deal because they made this $500 million-plus investment in the convention center, and we’ve been delaying delivering this hospitality operation that supports it. But their support has been paramount in this.

HIT: What’s your broader view on current industry dynamics?

Merali: Can it lead to the opportunity for us? We have a really solid balance sheet. So, we are looking at opportunities – not to take advantage but to have access to assets that maybe wouldn’t have traded in previous cycles. It allows us some ability to get into properties that we think we could add value to. We’re highly active on repositioning luxury properties, boutique properties, big convention properties like this. We have several high-end extended-stay and limited-service properties, as well, and we think we can play in both of those spaces, too.

We’re in pre-development at our St Regis in Nashville. And if you look at that market and Miami Beach, there’s some similarities with tremendous corporate and business demand, but it’s also a leisure destination. They’re great places to do business…

I don’t think we’re diving into core urban locations. I love New York. Everybody loves New York. But I don’t see us as being a viable player there.

I was just in London, not necessarily on an investment trip, but we’ve had meetings and opportunities there. We have partners there. And Jackie Soffer (chairman and CEO of Turnberry) was just in Portugal and talking through things… We do have some stuff going on in the Caribbean, as well as an opportunity, but likely very heavy residential and very heavy on the luxury space.

I don’t see anybody doing a construction deal in 24 months on an 800-room hotel that’s thinking short term, but I see some folks out there trying to pitch deals and do things that have a shorter-term view. I don’t think those deals get done. And if they get done, I would be quite concerned about the approach and ability to hold because these things are seasonal. These assets are big. You need to invest, and you need to have a balance sheet to support them. But the value creation opportunity, we believe, is there.