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Hotel Financings Powering Surge in CMBS Market

Seven Single-Borrower Deals Deliver a Strong Start to 2018
February 13, 2018
Blackstone Group's Turtle Bay Resort in Kahuku, HI

CMBS issuance this year is off to a strong start, driven, as it was last year, by single-borrower deals totaling $4.7 billion so far.

Notably, hotel properties again have been one of the stars of the current run and have facilitated a number of large refinancings and acquisitions. Issuance of CMBS loans in the hotel sector grew from $2.7 billion in 2016 to nearly $14.5 billion in 2017, according to JLL.

Slightly more than half of this year's private-label deals by dollar amount are backed by hotel properties -- $2.9 billion in all with two more in the pipeline. The loans this year range from $190 million to $960 million averaging $415 million.

"The size of the CMBS market is where it should be at this point in the cycle, and it's continuing to provide a valuable alternative for property types that might not be getting life company or other institutional money because of lender selectivity." said Tom Fish, executive managing director and co-head of JLL Capital Markets, Finance.

However, the current run of hotel deals may be due for a slowdown. Early warning signs of declining hotel performance have emerged, says Fitch Ratings. Fitch has seen an increase in the volume of hotel loans transferring to special servicing and performance metrics in seven of the top U.S. metropolitan markets are under pressure by oversupply.

High levels of construction activity can make RevPAR levels less sustainable, Fitch analysts said. Oversupply is an issue in several key markets including Dallas, Denver, Houston, Miami, Nashville, New York and Seattle. In each of these markets the supply of rooms under construction is in excess of 20% of the number of currently available rooms.

The frequency at which hotel properties have transferred to special servicing within the last two years is another sign that the hotel market has peaked, Fitch noted. At the end of 2017, 44 loans totaling $691 million were in special servicing. The majority were transferred to the special servicer during 2017 (59% by count).

2018 Single-Borrower Hotel Deal Summaries

In the most recent deal, Hersha Hospitality Trust (NYSE: HT) refinanced the existing debt on seven assets in Manhattan owned in an existing joint venture with Cindat Capital Management Ltd. The joint venture entered into a new $300 million mortgage loan from UBS AG and $85 million of mezzanine financing and refinanced the prior $285 million aggregate senior loan and term loan. The assets comprising the joint venture are: the 210-room Holiday Inn Express Times Square; the 188-room Candlewood Suites Times Square; the 184-room Hampton Inn Times Square; the 144-room Hampton Inn Chelsea; the 136-room Hampton Inn Herald Square ; the 113-room Holiday Inn Wall Street; and the 112-room Holiday Inn Express Water Street.

Citi Real Estate Funding provided an affiliate of Blackstone Group (NYSE:BX) $189.1 million floating rate loan to help acquire the Turtle Bay Resort, a 452-key, 6-story full-service resort in Hawaii. The loan has an initial two-year term with five, one-year extension options Proceeds from the loan, along with $52.9 million of mezzanine debt and $101.3 million of sponsor equity, were used to acquire the property for $332.5 million.

Goldman Sachs Mortgage Co. and JPMorgan Chase Bank provided an affiliate of Starwood Capital Group a $471 million to refinance a portfolio of 85 InTown Suite hotels. The loan is interest-only for its entire term and has a floating interest rate equal to LIBOR plus 2.25%. In June 2013, Starwood acquired a portfolio of 138 InTown Suites properties totaling roughly 18,000 rooms across 21 states for $735 million. In 2015, it acquired the remaining 50 InTown Suites-branded properties.

JPMorgan Chase and German American Capital Corp. provided $960 million to Colony NorthStar (NYSE:CLNS) for the refinance of 135 full-service it acquired through a foreclosure action last summer. The loan has an initial two-years and is interest-only at a floating interest rate equal to LIBOR plus 2.646%. The hotels operate under 20 different national brands, each of which is affiliated with Marriott, Hilton, Choice Hotels, IHG, Carlson, or La Quinta.

Affiliates of Ashford Hospitality refinanced a portfolio of eight properties they bought between 2005 and 2007. A $395 million loan from JPMorgan Chase refinances $379 million of mortgage debt. The interest-only, floating-rate is for two years with five one-year extension options.

Singapore-based Westmont Investments LLC, an affiliate of Westmont Hospitality Group refinanced a portfolio of Red Roof Inns. Westmont owns a 100% interest in Red Roof Inns Inc. The portfolio was previously securitized in 2015 with a $360 million mortgage loan and $90 million in mezzanine loans, which were used to acquire the portfolio for $575.5 million. Barclays Bank and Morgan Stanley Bank provided a new two-year, floating-rate, interest-only commercial mortgage loan totaling $400 million with three, 1-year extension options.

Lastly, AMR Funding NV, a limited liability company organized under the laws of Aruba, provided a $195 million, fixed-rate, leasehold mortgage loan n the Aruba Marriott is an upscale 411-room, beachfront resort .The loan facilitated a recapitalization whereby the existing mortgage loan of $159.4 million was paid off and the ownership interests of a Goldman Sachs fund managed by Caribbean Property Group and Five Mile Capital, LLC were bought out by the borrowers, an affiliate of DLJ Real Estate Investment Partners, and MetaCorp International Inc.

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