Hilton IPO

Blackstone filed for a $1.25 billion IPO on Hilton. This would be used to "pay down debt" according to the Bloomberg article that is out today, but is a drop in the bucket compared to the $9 billion senior mortgage that was structured in 2010 with a piece in BALL 2010-HLTN, and another ~$10 billion in mezz debt done at the same time. Previous Hilton stories can be found here.

Bloomberg also notes that Blackstone has had two other IPOs in the past year: SeaWorld Entertainment Inc ($807.3mm, April - up 6%) and Pinnacle Foods Inc. ($667mm, March - up 35%).

Extended Stay Hotels - It's baaack!

Some of the largest belly flops following the Great Recession were in the Hotel sector, and interestingly, we're seeing two of those spectacular failures come back into the market this month. Red Roof Inn is out in a new issue deal (which we will publish an update on as soon as it prices), and Extended Stay was in the WSJ this morning as it filed for an IPO.

You'll recall Extended Stay, a 680 property hotel chain, was purchased by Lightstone for $8 billion, went through Chapter 11, and was picked up by Centerbridge/Paulson & Co/Blackstone for $3.9 billion in 2010. The current owners have approximately $3.6 billion in debt part of which is in a 2010 deal.

In the original CMBS loan default, everyone sued everyone - even the special servicers involved ended up suing each other. We posted numerous updates about it as it played out. The potential buyers sued, the creditors sued, the Fed owned a big chunk via Bear Stearns... it was ugly. Of course, the day it first showed up in a deal many CMBS players were scratching their heads wondering how the deal got done in the first place.

And the Winner is...

Blackstone, in a bid to spread it's real-estate hegemony to multiple continents and asset classes has made Jonathan Gray a busy man.  Going long and strong real-estate, whether residential or commercial, has been a no-brainer since 2009 but much credit needs to be given to Jon Gray and his crew.  Actually,  the media has been covering his situation pretty thoroughly for a while now so The CRE Review is going to do a synopsis covering Blackstone's dominance in this area.

 Before we get started, here are some overviews of JG that are worth familiarizing yourself with.

1. Jonathan Gray, Blackstone’s Real Estate Wizard Behind the Curtain - New York Observer
2. Jon Gray Skips Party, Afraid Record Buyout Will Fail - Bloomberg
3. Blackstone's Gray Joins Board as Real Estate Rises to 71% of Firm's Profit - Businessweek 

Whether it has been getting involved in GGP's bankruptcy, loaning money to and then owning  Eagle Hospitality (Apollo and preferred shareholders got spanked on this one; more on this story another time), buying Centro, or any other (Emeritus' health-care portfolio) of it's lucrative joint-ventures (Glimcher); Blackstone has acquired an empire that spans beyond commercial buildings.

Jon Gray has also been busy acquiring a massive portfolio of residential houses; often times he is buying them in bulk.  Look no further than the mortgage team at Bloomberg and you will frequently see BX named in a story that excessively celebrates the genius of buying resi when it has never made more sense to do so.

1. Blackstone Sees Two-Year Window to Buy Houses: Mortgages - Bloomberg
2. Phoenix Picked Clean, Private Equity Descends on Atlanta - Bloomberg 
3. Blackstone Makes Foray Into Houses for Rent: Mortgages - Bloomberg
4. Blackstone Rushes $2.5 Billion Purchase as Homes Rise - Bloomberg

See what I'm saying here?   While not every purchase has been a winner (see: EOP restructurings, Hilton buyout), their aptitude to see trends just a few months before anyone (lol) else tells me that leaving the keys in the mail is just the price of doing business on such a massive scale. 

In case you haven't learned enough already.  A couple more to drive the point home.

1. The Hotel Hegemony Continues
1. Blackstone Said to Seek $450 Million for Hotel Financing - Bloomberg
2. Blackstone Said to Plan Sale of Miami Beach Resort - Bloomberg
3. Blackstone/Apple REIT Merger Signals New Wave of Private Equity Hotel Investment - CoStar

Maybe in the future we'll do a similar story on CRE investors who recently got it all wrong.  Any ideas?  Maguire, Lightstone, Macklowe might work.  Let us know.

~Jingle Male

A Brief Introduction from Jingle Male

My Fellow Americans,

It is an honor to be able to contribute to The CRE Review.  I look forward to helping this fine blog and its readership stay abreast of what's going on in real-estate.

If you need to reach me: creJingleMale@gmail.com

Now let's get back to business.  Here is what has been going in this sphere recently:

1. Demand for Commercial Real Estate Loans is on the Rise - SoberLook
1. According to JPMorgan, interest-only loans (equivalent to "balloon" mortgage) are on the rise and average loan coupon has been declining.
2. Wall Street Sees Promise in Multifamily Loans - WSJ Developments
1. “Multifamily loans lead the pack in terms of how aggressive the lenders will get” within commercial real estate, said Christopher Haynes...
3. Germany to Sell Real Estate to Lone Star for $1.4 Billion - Bloomberg
1. It’s the country’s biggest commercial-property deal of the year.
4.  Blackstone, Ranieri Betting on Bad FHA Loans: Mortgages - Bloomberg
1.  The FHA’s recent auction had 13 loan pools that sold for 24.8 cents to 59.3 cents per dollar of unpaid principal balance. The sales prevented $1 billion in fiscal 2013 losses for the agency’s insurance fund, Galante said 
5. Starwood Books Upgrade as Hotel Demand Slows: Corporate Finance - Bloomberg
1. The company plans to generate 65 percent of its earnings from fees, Chief Executive Officer Frits van Paasschen said on an Oct. 25 conference call. 

 - Jingle Male

Commercial Mortgages Getting Frothy?

The WSJ reported last week that it's getting frothy out there again, and I agree. They highlight the Retail Fashion Outlets of Las Vegas deal which went from a 58% senior mortgage to a 58% Senior mortgage plus a 26% junior mortgage (which could be mezzanine debt, it's not clear because the author of the article believes junior mortgages and mezzanine debt are the same thing...).

The article goes on:

Some owners are taking cash out of their properties. For example, the owners of Extended Stay—Centerbridge Partners, Paulson & Co. and Blackstone Group BX +1.01% —plan to borrow $3.5 billion by selling a combination of commercial-mortgage securities and mezzanine debt. They would put about $700 million of the proceeds in their pocket and use the rest to replace existing debt.

You'll recall that just two years ago ESH was mired in bankruptcy, in-fighting amongst special servicers, and a year-ago attempting a $2 billion takeout financing to buyout Centerbridge and Paulson. Today, nearly twice that is apparently available from the market and at much lower costs to the borrower.

Accor sells Motel 6 to Blackstone for $1.9 billion

Blackstone just agreed to buy Motel 6 from Accor SA for $1.9 billion dollars with a target close date in October 2012. The deal includes the 604 company owned hotels (my guesstimate at 97 keys per property puts that at 58,588 keys or $32,429 per key in terms of real property purchased only) and the franchise business from the 480 franchisees, and an additional 18 properties that were undefined (but this could be the Studio 6 brand that was part of the deal). The total deal value would have come in at $17,699 per key, but keep in mind that includes the Franchise and they're not actually buying that real estate. The WSJ published $25k per key, but I'm not sure how they got there. Looking at it from another angle, the price reflected a 9.3x 2011 EBITDA multiple.

JP and Deutsche Bank are providing the debt package, and I wouldn't be surprised to see it in the CMBS market in the near future.

Other interesting facts:

1. Accor originally purchased Motel 6 from KKR in 1990. 
2. Colony Capital owns a 21% stake in Accor.
3. Accor SA sold Red Roof Inns to a domestic investor group in 2007, right at the peak, and the $366mm CMBS senior mortgage from that deal ultimately defaulted in 2009, ultimately resulting in a 48% loss severity just one short year ago.
4. This almost completely removes Accor from the US market (other than Sofitel brands), but they have a substantial base internationally. The US now represents 1% of their total rooms - Europe= 56%; Asia Pacific = 28%. They even have a footnote stating that 35% of the hotel portfolio is in Emerging Markets - apparently roughly half of their pipeline is in Asia Pacific.
5. Reduces the percentage of owned rooms (versus leased, franchise, and just under management) to 10% of their total key count of 427,800 keys

The englais version of Accor SA's investor presentation on the Motel 6 disposal is here.


The current exposure to Motel 6 in CMBS is a little hard for me to gauge, and I'm sure I am missing some. It looks like the entered into a number of 20 year balloons and blocked off the properties in to SPEs with names like Mountain S9, East S9, etc. corresponding to their region. This is definitely not all of the debt associated with the hotels, though, because Accor noted in their press release that Blackstone is assuming €330mm in debt and fixed-lease commitments of €525mm - the debt below is listed with original face values (and it has amortized substantially in most cases) and only adds up to around €130mm using the original face and just a few dozen properties.

1. Accor- California South loan ($11.5mm) in CSFB 2001-CF2, which only covers 4 properties and matures in 2019. 
2.  Accor - Mountain Summary ($26.8mm) CSFB 1999-C1 is listed as a CTL so it's probably some master lease over a few properties. Matures in 2019.
3. Accor - California North Summary ($14.2mm) CSFB 1999-C1 with a 2019 maturity.
4. Accor - East Summary ($14.5mm) CSFB 1998-C2. 5 properties. 2019 maturity.
5. Accor - SouthEast Summary ($13.8mm) CSFB 1998-C2. 4 properties. 2019 maturity.
6. Accor - West Summary ($13.2mm). CSFB 1998-C2. 3 properties. 2019 maturity.
7. Accor - Texas Summary ($30.3mm) CSFB 1998-C2. 6 properties. 2019 maturity.
8. Accor - Florida Summary ($19.2mm). CSFB 1998-C2. 4 properties.2019 maturity.
9. Accor - Midwest Summary ($15.7mm). CSFB 1998-C2. 5 properties. 2019 maturity.
10. There are a couple of other non-defeased Motel 6 loans, but they look like franchises.

Maiden Lane III going to the auction yard April 26th

Blackstone to be the auctioneer, and its by invitation only.

Bidders:

Barclays Capital Inc.

Citigroup Global Markets Inc.

Credit Suisse Securities (USA) LLC

Deutsche Bank Securities Inc.

Goldman, Sachs & Co.

Merrill Lynch Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. LLC

Nomura Securities International, Inc.  

So, the concerns about this supply burst is going to be a non-event more than likely.

New Issue Calendar

February - 4 deals, $2.105b. Including a Distressed Loan deal from Rialto Capital worth $200mm

March - 7 deals, $5.9b. Also one Distressed loan deal from Blackstone and Square Mile Capital.

April - 3 deals, $2.75b

Blackstone/DDR buying EPN Portfolio fka Maquarie/DDR

CMAlert reported that Blackstone and DDR partnered to buy the 46 property, 10.6mm sf, EPN Group's retail portfolio for $1.4b, assuming mortgages on most of the properties, and using 3.9mm of the sf from 15 properties to back a loan used in the acquisition.

EPN took out Macquarie's interest in Macquarie DDR Trust in April 2010, and then took out DDR's interest in 2011, and DDR (the other partner in Macquarie DDR Trust) is now partnering with Blackstone (actually, its Blackstone Real Estate Partners VII Fund) to buy all the assets. The partnership will be 95/5 in Blackstone's favor, and DDR will also own a substantial (~10%) preferred equity slice.

The shopping-center portfolio represents the bulk of the assets of the former Macquarie DDR Trust, a joint venture between Macquarie Group of Australia and DDR, a shopping-center developer in Beachwood, Ohio. In 2010, EPN acquired a majority stake in Macquarie DDR, which was renamed EDT Retail. EPN took full control a few months ago. EPN, which is based in Skokie, Ill., was formed in 2009 by Alex Berman, a former executive of General Growth Properties.

ProLogis selling top tier properties to Blackstone

Bloomberg reported that ProLogis is selling some of its best properties to Blackstone in a $1.02billion sale that includes 180 industrial properties, 3 stakes in real estate funds, and a minority stake in the Hilton New Orleans Riverside Hotel - to close in mid-November.

And the Real Winner is...

We called it to soon back in March. The Centerbridge/Paulson/Blackstone investor group swooped in to take Extended Stay out of bankruptcy, quashing the creditor-approved group led by Starwood. More details to come.

There was one bit of unintended humor highlighted in the WSJ report on the matter:

Judge James Peck of the U.S. Bankruptcy Court in Manhattan initially approved Extended Stay's Chapter 11 restructuring plan in July, calling it "perhaps an unprecedented bankruptcy" involving entities "never expected" to file for bankruptcy protection.

I think it's fair to say that a lot of people expected this deal to fail - it epitomizes the rise and fall of the CRE space and Hotels in particular. Blackstone put $3-$4 billion into buying it in 2005, then flipped it to Lightstone in a highly levered $8 billion transaction in 2007, and now they're taking it back.

Blackstone's Property Deals

The WSJ summarizes Blackstone deals this year

• Blackstone and Glimcher buying Pearlridge Center on Oahu for $242mm from Northwestern Mutual
  
• Blackstone bought 60% stake in Glimcher's Lloyd Center (Portland) and Westshore Plaza (Tampa) in March for $60mm + debt assumption -- see here-both serve as collateral in 4 2003 deals.
  
• Caruso Affiliated & TPG Capital paid $750mm for retail and mixed-use out West
• Blackstone is buying an 80% stake in 17mm sq ft of warehouse space for $105mm + debt from an Eaton Vance Fund. Prologis is the joint owner and will keep its 20% stake.
• Blackstone closing this week on a $500mm purchase of a portion of GGP, this week.
  

GSMS 2007-EOP $4.9 billion getting restructured?

Bloomberg Reports:

April 22 (Bloomberg) -- Blackstone Group LP may ask creditors to restructure $4.94 billion of debt remaining from its 2007 purchase of Sam Zell’s Equity Office Properties Trust, according to two people familiar with the discussions.
Blackstone would consider paying down about 5 percent of the balance and agreeing to a slightly higher interest rate in exchange for extending the maturity, according to the people, who declined to be identified because the talks are private. The debt, which was packaged and sold as a commercial mortgage-backed bond in June 2007, matures in 2012, according to data compiled by Bloomberg.
While U.S. commercial property values have fallen almost 42 percent since 2007, the Blackstone properties are generating enough cash to pay the mortgages, according to the data. The private equity firm led by Chairman and Chief Executive Officer Stephen Schwarzman acquired the real estate in 2007 in a $39 billion leveraged buyout, the biggest to date at that time, and

Which will be a roadmap for all the poor schmoes they flipped the early properties to, also in CMBS deals (i.e. Beacon & Seattle in SS as of this month)...

Blackstone also sold EOP real estate Seattle, including 17 office buildings to Boston-based Beacon Capital Partners in 2007. Additional EOP sales were made in Diego and Portland, Oregon.

Update:
We should note that we looked at the financials in 2007 and 2008, and they were so screwed up even BoA (the servicer and lead) couldn't even tell us which properties were contributing how many dollars (a bunch were JVs) each period and what the actual debt service ratios were. You really couldn't even tell which properties were still contributing cash and which had been flipped, and it became apparent that BoA didn't know either. Even after spending a weekend with the financials and your own due diligence, there simply was too much misinformation and bad information that you couldn't nail anything down. I think it was intentional, and I didn't buy any bonds purely based on the lack of information issues, not even mentioning the credit issues. Oh I wish I could remember the names of the individuals and I'd publish them.

Orig List of Properties in the EOP deal:
Verizon Building
225 Franklin
500 Boylston (JV)
60 State Street (JV)
100 Summer Street
717 Fifth Avenue
10 & 30 South Wacker (JV)
Stamford Plaza Consolidated
Yahoo! Center (JV)
222 Berkeley (JV)
28 State Street
Santa Monica Business Park
Sun America (JV)
Center Plaza
150 Federal Street
10960 Wilshire Boulevard
Metro Center Tower
10880 Wilshire Boulevard
Concourse
Norwest Center (JV)
125 Summer Street
One Post Office Square (JV)
Wellesley Office Park
Westbrook Corporate Center
Wachovia Financial Center (JV)
Towers at Shore Center
30 North LaSalle
Frost Bank Tower
One North Franklin
Oakbrook Terrace Tower
Peninsula Office Park
Riverview
One Memorial Drive
Lakeway Center Consolidated
Xerox Campus
Rowes Wharf Office & Hotel (JV)
Corporate 500 Centre
Wilshire Palisades
Riverside
Gateway Office
Skyport Plaza-East
Ferry Building (JV)
Bayhill 4-7
300 West 6th
The Tower at NEEP
One Congress Plaza
225 West Santa Clara Street
Palo Alto Square
One American Center
300 Atlantic Street
Commerce Plaza
Promenade II (JV)
Pruneyard Office Towers
Ten Almaden
Skyway Landing
Canterbury Green
Civic Opera House
The Tower in Westwood
San Jacinto Center
Sunnyvale Business Center
Foothill Research Center
101 North Wacker
Arboretum Courtyard
1500 Page Mill
Century Square
Corporate Centre
Searise Office Tower
Pruneyard Shopping Center
Metro Plaza
175 Federal Street
The Plaza at San Ramon
555 Twin Dolphin Plaza
177 Broad Street
Bay Park Plaza I + II
Shorebreeze I and II
One Lincoln Centre
Larkspur Landing Office Park
161 North Clark (JV)
333 Twin Dolphin Plaza
Pointe O'Hare
Austin Research Park I & II
Pasadena Financial
Embarcadero Place
700 North Brand
Hacienda Terrace
1221 Brickell (JV)
Ten Canal Park
25 Burlington Mall Road
One Bay Plaza
Drake's Landing
790 Colorado
Golden Bear Center
Bridge Pointe (JV)
1740 Technology
Pasadena Towers (JV)
2180 Sand Hill Road
Clocktower Square
Stonebridge Plaza II
201 Mission (JV)
429 Santa Monica Boulevard
1111 West 22nd Street
South Station
Santa Clara Office Center I - IV
SunTrust Center (JV)
Park 22
San Mateo Bay Center I
Fountaingrove Center
San Mateo Bay Center II
Treat Towers (JV)
One Canal Park
Prominence at Buckhead (JV)
Harbor Drive Executive Park
Westech 360
2951 28th Street (JV)
Redwood Business Park II
1200 Corporate Place
580 California (JV)
Wood Island Office Complex
Redwood Business Park III
Shoreline Office Center
3850 and 3880 Brickway Boulevard
Community Corporate Center
Skyport Plaza-West
Woodside Office Center
1333 H Street (JV)
Oak Valley Business Center-Cons.
The Lakes
1111 East 19th (JV)
Patrick Henry Drive
77 South Bedford Street
Great Hills Plaza
World Trade Center East (JV)
Redwood Business Park I
San Mateo Bay Center III
1700 Market (JV)
1620 L Street (JV)
Redwood Business Park IV
Waterfall Towers
Lockheed Building
Parkpoint Business Center
1601 Market (JV)
Redwood Business Park V
1179 North McDowell
Fountaingrove Executive Center
Scott Boulevard