In April 2001, Thayer Lodging Group broke ground on its 1,582-room Grand Lakes Resort in Orlando. Since then the project has faced as many rough spots as an amusement ride at nearby Disney World. But the saga ended smoothly in January when Thayer announced a binding agreement to sell the luxury property for $753 million to CNL Hotels & Resorts, a hotel real estate investment trust. The sale was expected to close by the end of March.

Leland Pillsbury, Thayer's chief executive, says that the transaction produced a compounded annual return to investors in excess of 40%. “The project moved ahead faster than we ever expected,” Pillsbury says. The solid sale price confirms the continuing strength of the Orlando market, adds Pillsbury. “The depth of demand for upscale accommodations in Orlando exceeded our expectations.”

An aggressive risk taker, Thayer aims to deliver annualized returns of 25% to a small group of blue-chip institutional clients, including pension plans of General Electric and AIG, the global insurance giant. The private equity real estate investment firm sometimes renovates shabby properties or rebrands them. In the case of Orlando, the development started from scratch.

Plenty of outsiders doubted that the Florida project could succeed. Orlando already had 105,000 hotel rooms, and it was not clear that the market needed more supply, the doubters said. But Thayer set out to provide luxury rooms in a city that focused on serving the middle market.

The project includes two hotels, the 584-room Ritz-Carlton Orlando and the upscale 998-room JW Marriott Orlando. “We concluded that people who stay in a Ritz-Carlton in New York or San Francisco would want to stay in a Ritz-Carlton when they bring their kids to Orlando,” says Pillsbury.

Before the new development had made much headway, the terrorist attacks occurred on September 11, 2001. Hotel occupancy collapsed, and developers around the country put construction projects on hold. Friends of Thayer's Pillsbury phoned him, expressing sympathy for the plight of the developer caught in a difficult time.

But the stagnant market soon began working in Thayer's favor. “Because there was so little work going on, our development and construction costs were a bit lower than they would have been,” Pillsbury says. “We were able to get lots of attention from contractors.”

Thayer raced ahead, finishing the resort in July 2003 on time and under budget. Just as Grande Lakes was opening, the hotel market started to recover. Convention groups and tourists were returning to Orlando. Demand for luxury rooms exceeded Thayer's expectations.

By late 2005, occupancy of the Marriott was over 70%, and the Ritz-Carlton rate topped 60%. The properties are still not fully stabilized, but they attracted a bid from CNL, which wanted the opportunity to profit from future upswings in fundamentals. “We estimate that the properties will keep improving and stabilize in about two more years,” says John Griswold, president and COO of CNL Hotels. “It takes awhile before top travel agents begin recommending a luxury property to their best clients.”

Besides the Orlando property, Thayer has been busy making other sales lately, including the 1,334-room Marriott Wardman Park Hotel in Washington, D.C. for $300 million and an annualized return of 17%. Altogether, Thayer has recorded sales of $1.5 billion during the past year, while purchasing only $125 million worth of hotel properties.

Thayer's Pillsbury says that he is having a hard time finding the bargains that his strategy requires. The real estate investment firm currently has $170 million in cash that it hopes to invest soon. “Our investors understand that our objectives are aggressive,” emphasizes Pillsbury. “They will wait patiently while we search for transactions that can produce substantial returns.”