February has been a busy month for New York-based private equity firm Glenmont Capital Management LLC, when it comes to seizing opportunities in Daytona Beach, Fla.

In a joint venture with an affiliate of Peachtree Hotel Group, a Glenmont Capital affiliate acquired the 96-room Holiday Inn Daytona Beach LPGA Boulevard. The purchase was made through a deed in lieu of foreclosure agreement with the prior owner. It represents the first of several planned acquisitions for the joint venture in the market of distressed notes secured by newly built hotel properties in secondary U.S. cities.

Located on a 3.5-acre site, the Holiday Inn had just opened in May 2009 near the headquarters for the Ladies Professional Golf Association (LPGA) and its two 18-hole golf courses. It is also close to the Florida headquarters for the United States Tennis Association. The hotel offers 2,635 sq. ft. of meeting space, a restaurant, fitness center, business center and outdoor pool and Jacuzzi.

“These assets often represent the newest, best quality product within their submarket and are typically already generating positive cash flow and have the potential to recover to substantially higher levels of cash flow as the market recovers,” said Joseph Smith, principal of Glenmont Capital Management, in a statement.

“Fundamentally, there is nothing wrong with these properties, but the in-place cash flow is often insufficient to cover debt service due to excessive leverage and weak market conditions,” noted Smith. Because the construction loans secured by the assets typically have full personal recourse guarantees, borrowers have an incentive to turn over the keys to note holders in exchange for a waiver of their personal liabilities, he added.

The venture acquired the Holiday Inn after buying its $7.6 million non-performing first mortgage loan. At approximately $47,500 per room, the acquisition price represents a 60% discount from the total development cost less than two years after its completion, said Smith.

Venture snaps up waterfront units

In another off-market Daytona Beach transaction, a joint venture led by South Florida-based Tarpon Partners LLC, an affiliate of The Swerdlow Group, joined with Glenmont Capital Management LLC to acquire the first mortgage note secured by 414 unsold residential units.

The units are located at Marina Grande on the Halifax, a luxury waterfront condominium project. The venture acquired title to the units with a deed-in-lieu of foreclosure agreement with the owner. The transaction enabled the Tarpon-Glenmont venture to gain control of the $240 million project for less than 25% of its original cost.

Marina Grande on the Halifax, now known as MG on the Halifax, is a planned, 972-unit, two-phase residential condo development on the Halifax River in Daytona Beach. Completed in 2009, Phase I consists of two 25-story towers with 486 units, of which 319 had been presold during construction. Because of the collapse of the residential real estate market in Florida during the recession, only 72 of those signed contracts closed, leaving a majority of the development’s first phase unsold and unoccupied.

The venture, co-sponsored by Tarpon Partners and Glenmont Capital Management, acquired the remaining 414 unsold residential units along with commercial units. The venture plans to invest “tens of millions” of dollars into the project. For instance, the investors plan to construct a 10,000 sq. ft. clubhouse, a 32-slip marina, resort-quality pool, state-of-the-art fitness center and related amenities. Existing features at MG on the Halifax include a private lounge, gym facilities, an infinity swimming pool, 24-hour valet, security and concierge services.

Condo sales are resuming, with a limited number of units to be offered at a 50% discount to the original pricing. Phase II of the project calls for two additional 25-story towers containing 486 units. It will begin after completion of Phase I sales. The venture also owns Phase II through a separate acquisition and deed-in-lieu of foreclosure transfer of the first mortgage debt at a 60% discount to the loan balance.

“We now have the ability to generate opportunistic level returns without the need for unrealistic market growth, while at the same time we can offer these luxury units to buyers at a price point that represents a significant discount to peak market pricing,” said Lawrence Kestin, managing principal of Glenmont.

“The residential real estate market in Daytona Beach is starting to recover after the recent years of declining values and the uncertainty over the economy,” added Brett Dill, president of Tarpon Partners.