Rick Caruso, a Los Angeles shopping-mall developer, plans to spend about $185 million to rebuild a Southern California seaside hotel with a troubled past into a luxury getaway.

The 170-room Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara, will have such amenities as a beach club, spa, restaurants and two swimming pools, said Caruso, founder of closely held developer Caruso Affiliated. The site’s former hotel, known as Miramar by the Sea, has already been razed.

Caruso bought the property in 2007 from H. Ty Warner, the billionaire creator of Beanie Babies plush toys and owner of the Four Seasons Hotel New York. The California hotel, on about 15 acres (6 hectares), had been out of service for more than a decade as past revival efforts were stalled by local opposition to development and the property market’s crash. Former owners include hotelier Ian Schrager.

“It’s one of the most unique and irreplaceable pieces of real estate on the coast of California,” Caruso said in an interview at the Grove, his town square-style retail center in Los Angeles. “This will be an escape for visitors and locals alike.”

Caruso, who has about $1 billion in residential, retail and hospitality projects planned or under development, said he expects to choose a hotel operator and receive Santa Barbara County approval for final amendments to the Miramar project, including a surface parking lot to replace a once-planned underground garage, by the end of the year. Earlier plans also called for 200 more rooms than are now proposed.

Higher Rates

The average daily hotel room rate in the Santa Barbara area was $168.16 in the first six months of the year, compared with $138.12 statewide, according to research firm STR Inc. Revenue per available room, a measure of occupancies and rates used by the lodging industry, was $119.29 in the area, compared with $101.33 for all of California.

“Santa Barbara is doing phenomenally well,” Alan Reay, president of Irvine, California-based research firm Atlas Hospitality Group, said in a telephone interview. “With the improving economy, the lack of new supply and the incredible demand from both businesses as well as leisure travelers from California, other states and abroad — in particular, Europe — this is one of the great lodging markets.”
Debt Cut

Caruso paid $52.5 million for the property. At the time of the purchase, an existing loan of about $50 million with Barclays Plc (BARC) was renegotiated to cut the debt in half, he said.

Rebuilding the property “makes sense from a business point of view,” Caruso said. “The hotel market in Santa Barbara is so constrained. There are very few hotel rooms in this market.”

There remains a hurdle for Caruso once construction is complete, Reay said: the railroad tracks that cut through the middle of the property.

“That is going to be his biggest issue — the noise factor,” Reay said. “People may be willing to deal with that if they are staying at a motel or if you are at an airport hotel, but once you pay $1,000 or $1,500 a room and that train is coming through in the middle of the night, it’s a big risk.”

Caruso said he’s not concerned because another luxury hotel in the area has dealt with the same issue, and local residents are used to the railroad.

“There is the Four Seasons and $50 million beach houses with the train running behind” them, Caruso said. “On top of that, we are doing some things around the train that will be very cool,” he said, declining to provide details.
First Hotel

The rebuilt Miramar, scheduled to open in mid-2017, is Caruso’s first foray into hospitality. Additional hotel projects are likely, he said.

Caruso, who has eight shopping centers in the Los Angeles area, has been expanding beyond retail by building high-end apartments near Beverly Hills. He’s planning a $200 million mixed-used project with luxury apartments on La Cienega Boulevard in Los Angeles, where a shuttered Loehmann’s store now stands.

“What I see in the hotel sector is what I see in retail and luxury apartments: It’s about having a collection of the best properties in the world,” Caruso said. “We’ll be on the lookout.”

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net Daniel Taub, Christine Maurus