North Shore resort operator changes hands in deal worth millions

North Shore resorts have become hot commodities.

The operator of six boutique properties ranging from updated cabins to stand-alone vacation houses with vistas of Lake Superior is changing hands in a multifaceted deal announced Tuesday.

The sale involves the East Bay Suites in Grand Marais, the Caribou Highlands in Lutsen, Beacon Pointe in Duluth and three resorts in Two Harbors — Breezy Point Cabins, Grand Superior Lodge and Larsmont Cottages.

The resorts encompass some of Minnesota's most popular vacation areas, where properties tend to weather economic downturns as Midwesterners stay closer to home and now are poised for future growth as millennials with disposable income venture north in search of experiences.

All six of the properties were built, rehabbed, owned or managed by Odyssey Resorts, which claims to be the state's largest developer of resorts. Its founder and chief executive, Bob Ryan, has been developing North Shore property for more than four decades on his own and with his family.

Blackburn Investment Management, a Minneapolis private equity firm, is the primary owner. Blackburn partnered with Madison Hospitality Group — a Brainerd-based management company with experience managing hotels and independent resorts — as well as additional investors. Terms of the deal were not disclosed.

The real estate deal was one of several in recent years along the North Shore, in what some real estate brokers are describing as a "generational turnover."

Gunflint Lodge in Grand Marais, with an asking price of $6.8 million, sold in June 2016 after four generations of ownership. The Lutsen Resort, said to be the state's oldest, sold in August 2017 for just under $7 million.

At least two properties are on the market now. Superior Shores in Two Harbors, which is on the market for $17.5 million, is under contract to close in about three weeks. The Bluefin Bay Family of Resorts, which has an unlisted price, is described as a "trophy asset" that includes the Bluefin Bay resort in Tofte.

"In the last two years, you have 10 or 12 resort owners coming to a time when they're ready to think about retirement and they're looking for really good buyers to carry on their legacy," said real estate broker Frank Jermusek, who specializes in resort sales and who handled the Odyssey deal.

Jermusek, president of SVN Northco Real Estate, also sold Gunflint and has the listing for Superior Shores.

"There are pockets of resort activities that are really strong, and the North Shore is one of those," he said. "They've got really strong numbers during good economies and bad."

Ryan said he hadn't been planning to sell the whole group.

But officials with Blackburn and Madison Hospitality separately approached him and his older brother, Tom, 73, about buying Caribou Highlands, an amenity-rich collection of condos and vacation houses tucked into the Sawtooth Mountains and the Lutsen ski hills. That property had been listed for nearly $6 million.

The conversation quickly turned into an all-out sale of the six Odyssey properties, with the separate suitors teaming up to drive the deal.

"It struck me as a good time to sell," said Ryan, 63, "and allowed me to think that there's a chapter two ahead for me.

T.J. McMillan, who founded Blackburn with his father, Greg, said their firm saw potential for future growth and development among the vast portfolio of Odyssey properties, which can range from $85 a night for a one-room studio to $700 nightly for a four-bedroom house.

About 90,000 people stay in one of the Odyssey properties a year, according to the company.

"The North Shore is a beautiful area that serves as a great escape from the hustle of the city," McMillan said, "but that's not the only thing that piqued our interest. We were attracted to the deal because it's a good business that understands the value of customer service and hospitality."

Odyssey Hospitality, with headquarters in Duluth, is somewhat rare in that the company maintains control even after building and developing sites. It runs the restaurants, hires the housekeepers, handles all the technology. It also acts as broker for privately owned condominiums and vacation houses whose owners also want to rent out their properties.

Blackburn's typical business model is to find inefficient or mispriced investments that have high cash-flow opportunities. But McMillan indicated that this deal might have a longer time horizon, which is why it sought an experienced hospitality partner.

Ryan, who will stay on for 18 months during the transition, said he feels as if the properties will be in good hands with new owners with the capital to make improvements.

"To have the company you built live on — with owners who buy into your culture and who want to continue to expand and grow — from my perspective that's the best you can hope for as a business owner," he said.