Marriott Frenchman's Reef

Marriott’s Frenchman’s Reef Beach Resort on St. Thomas. DiamondRock, which has owned the resort since 2005, reported in March that it had “brought Frenchman’s Reef to market for potential sale” in order to raise cash for the company and reduce its carrying costs.

Frenchman’s Reef & Morning Star Marriott Beach Resort is up for sale and a potential buyer, Fortress Investment Group, LLC, is eyeing an anticipated closing in May, according to sources close to the V. I. government.

Mark Brugger, president and chief executive officer of current owner DiamondRock Hospitality Company, reached Tuesday for comment acknowledged a potential “partnership investment” and the possibility of reviving hopes of a rebound for the Virgin Islands’ storied resort.

“With the current COVID-19 situation and related financial crisis in our industry, construction on our Frenchman’s Reef Marriott Resort and Noni Beach Resort was paused. However, work to reopen the resort has been rigorous, including investigating the possibility of partnership investment,” Brugger said in an emailed response.

DiamondRock, which has owned the resort since 2005, reported in a March proxy statement that it had “brought Frenchman’s Reef to market for potential sale” in order to raise cash for the company and reduce its carrying costs.

Potential investor

Fortress, a global investment management company with roughly $50 billion of assets under management, has a track record of purchasing long-term, controlling stakes in undervalued or distressed companies, from hotels to condos and railroads, according to the Real Deal. The firm often serves as a portfolio investor rather than assuming legal or management control of the assets in which it invests, according to its website.

A Fortress spokesperson did not return a call and email requesting comment as of Daily News press time on Wednesday. Government House Director of Communications Richard Motta also did not return a phone call and email seeking comment.

Rebuild plans; $240M insurance proceeds

The territory has clung to a roller coaster of promise and despair since 2017, when DiamondRock closed Frenchman’s Reef & Morning Star Marriott Beach to rebuild from hurricanes Irma and Maria with about $240 million in insurance proceeds for property damage and lost income.

At a time when most major St. Thomas resorts were still closed, Marriott’s Frenchman’s Cove, part of Marriott Vacation Club, shone a ray of hope in early 2018 by resuming full operations; the island’s first branded property to do so after the hurricanes.

A year later, in December 2019, a much-publicized $300 million makeover had sufficiently progressed for DiamondRock to host an exclusive sneak peek attended by the hoi palloi of V.I. government and business to tour its finished rooms and sample the gourmet menu.

The hospitality company followed with an announcement it would open a welcome lounge at King Airport for The Marriott Frenchman’s Reef Resort and Spa and adjacent Noni Beach Resort by late spring, 2020.

But in March, as the COVID-19 pandemic took hold, DiamondRock suspended its rebuild.

Approved EDC tax breaks

Eight months later it requested, and won, the V.I. Economic Development Authority’s approval for up to $136.3 million in tax breaks to Frenchman’s Reef.

In a hastily convened board meeting with less than 24 hours’ public notice, the entitlement was approved in executive session. It allowed

DiamondRock to use half of the Designated Hotel Room Occupancy tax that would ordinarily go to the V.I. government to reimburse a portion of the cost of rebuilding and upgrading the resort “for a period of 30 years or until such time the direct investment” of $136.3 million “is liquidated, whichever is earlier,” according to a summary provided by the EDA board.

“We want to make sure that this territory remains viable and resilient into the future and we want to make sure that DiamondRock Frenchman’s Owner continues this project expeditiously because that is of extreme importance to us and to the territory,” EDA board member Haldane Davies said at the time.

Partnership venture?

Almost simultaneously, DiamondRock began looking for a capital partner to help it rebuild, according to a company earnings report. By then it had racked up a net loss for the three months and year ending on Dec. 31 with an impairment loss of $174.1 million related to Frenchman’s Reef.

In accounting parlance, an impairment loss is a decrease in the net carrying value of an asset greater than its future undisclosed cash flow.

According to the report, DiamondRock had determined by the fourth quarter that “it was more likely than not that the Company would not hold the property for its remaining useful life.”

As a new buyer may also do, DiamondRock originally purchased Frenchman’s Reef as part of a portfolio acquisition; aware of the risks, but seeing potential in its enviable perch on the Caribbean Sea and the merger of Frenchman’s Reef and Morning Star, creating the largest hotel in the U.S. Virgin Islands.

— Daily News Reporter Suzanne Carlson contributed to this report.