Gansevoort Park Avenue hotel receiving criticism, threats to shut off its liqour license

This is important because it's a big pari passu CMBS loan in CGCMT 2012-GC8 and GSMS 2012-GCJ9.

More importantly they allegedly have naked girls and 24/7 parties at the pool on the roof, and we're sending someone over pronto to confirm this activity.

As reported by CBS .

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

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.

Hotel Lenders avoid Foreclosure

Bloomberg has an interesting article on hotel lenders.

. "Servicers do drag their feet with them a lot more because they aren't sure what to do."

(unless there is a backroom deal to be had)

Among hotel loans being worked out is $1.44 billion in financing backed by 355 La Quinta Inns & Suites owned by a unit of New York-based Blackstone Group LP.

...
"Special servicing is a routine precondition to requesting an extension and we have done this in over a dozen other similar situations."

(translation, "we've defaulted on over a dozen other failed loans where we are the borrower)

"Having some type of extension on an existing loan already in place, rather than a foreclosure or REO situation, is more likely in hospitality than in other commercial sectors," Stacey Berger, executive vice president at Midland Loan Services Inc., said in October. REO refers to real estate owned by lenders following a foreclosure.

h/t Anon

Red Roof Inn - 48% Loss Severity

That could have been way worse.... Barclays reported today that this month's remit for CGCMT 2008-C7 reflected a 48% loss severity, hitting the J tranche on that deal.

See our prior thoughts here.




And, btw, I'm back - Apparently everything wasn't really 'better' in CRE-land like they told me...

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.

Comings and Goings

According to one reporter (see image at bottom), there was an amazing event where a multi-borrower CMBS deal was completed without anyone in the CMBS market realizing it . The headline reads, "Keystone Completes Market's First Multi-Borrower CMBS in Two Years". Of course, that is not exactly true - Keystone made a loan that they hope to put in a CMBS deal in 4 or 8 months, or so...

Not sure if you heard, but delinquencies are up:

The hotel delinquency rate grew the most in January, to 9.82%, followed by retail loans, which make up 30% of the total outstanding balance and 40% of last month's new delinquent loans. On a percentage basis, the month-to-month change in the delinquency rate--which now sits at 5.24%--was bigger for retail than the hotel sector.

Markit added additional volatility, er, I mean, they added a new tranche to the CMBX index to represent a basket of AM bonds.

DDR is no longer pursuing a second CMBS deal, instead raising $304mm in new equity (equity is cheaper and easier than senior mortgage debt).






It's disturbing no matter how you twist it - reality, photoshopped, reality, photoshopped...

Rennaisance Mayflower Hotel (DC) asking for loan mod

One of the largest (5.7%) loans in BACM 2007-3 is asking for debt relief. Not completely unexpected, but we did call them last fall on a number of occasions and couldn't get a room - took that as a sign things might be okay there, despite the financials...

Although Rockwood isn’t in default on the note, it was forced to lower room rates to keep up occupancy. As a result, the hotel earned just $7.6 million in 2008 and $6 million for the first half of 2009. That’s not enough to cover the $11.5 million in debt payments that Rockwood pays each year.

Value deficiency is around 55% per Realpoint.

Room 871 is where Ashley Dupre cheered Eliot Spitzer up on a number of occasions, but here presence was apparently unable to lift the hotels flaccid financials.

The Rockwood Group has a number of other problems too, and that concerns me.


UPDATE: April 2010 - went delinquent

Ashford testing Centerline's Resolve on Westin O'Hare

The WSJ reports that Ashford is trying to negotiate a loan mod on the Westin O'Hare hotel (525 keys)

Hotel owner Ashford Hospitality Trust Inc. is negotiating to revise the terms of its $101 million securitized mortgage on the 525-room Westin O'Hare hotel near Chicago's O'Hare International Airport.

Ashford, which owns 103 hotels, aims to strike a deal to keep the Westin O'Hare rather than forfeiting it to the special servicer overseeing the mortgage, Ashford executives say. But Ashford wants the payments it must make on the mortgage reduced because the hotel no longer generates enough cash flow on its own to cover them.

This follows the Hotel Burnham (122 keys)that defaulted in August, the Amalfi (215 keys) that is in Special Servicing currently, the Crown Plaza (Lodgian) in Worcester that lodgian is turning the keys in on (not in the Lodgian portfolio), InterContinental Chicago O’Hare (556 keys) that defaulted in August.

Ashford has a total of 103 hotels. I'll update this later with deal names.

Hotel Foreclosures Triple In the Sunshine State

Bloomberg reports

Foreclosures climbed to 47 in January through September from 15 a year earlier and properties in default more than quadrupled to 259, Irvine, California-based Atlas Hospitality Group said in a statement. Atlas specializes in selling hotels. The survey didn’t include states other than California.

Declining occupancy rates and a dearth of credit for refinancing loans taken out during the U.S. real estate boom is squeezing the travel industry. Loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default, according to Realpoint LLC, a credit rating company that tracks the performance of securities tied to mortgages on commercial property.

We need CRE headlines like todays', everyday, and its coming...

Offer wanted - West Caicos

Anyone know where I can buy this distressed loan?

On the otherwise uninhabited Atlantic Ocean island of West Caicos, work stopped in October on the Molasses Reef Ritz- Carlton Hotel and Residences, where cottages were priced at $6.5 million. About 400 Chinese employees of an Israeli construction firm, Ashtrom Properties Ltd., didn’t get paid, according to Jonathan Siegel, New York-based managing director of the project for Logwood Hotel Development Co. Some of them protested, surrounding the temporary housing occupied by their supervisors, preventing them from leaving until they received their money.

Maui Prince Hotel headed to foreclosure

The 310 key Maui Prince Hotel in Hawaii ($192.5mm in UBSCM 2007-FL1) is going into foreclosure.

The foreclosure may wipe out $227.5 million in mezzanine debt held by a UBS AG fund as well as $250 million in equity that Morgan Stanley and its partners put into the property, the
newspaper reported.

More on San Francisco Hotels

CR had a little write up on San Fran Gate article about hotels in California there...

Some prior articles from us are here.

Hotel Burnham defaults

Crain's reports (sorry no link) that the Chicago Hotel Burnham missed it's July and August payments.

“We’re not in a desperate situation here,” Mr. McCaffery says. “There’s no intention on my or Barry Mansur’s part to let this hotel go.”

The problem, according to Mr. McCaffery, is that he can’t start restructuring negotiations until the loan falls into default. A CMBS borrower typically can seek relief only after a loan is transferred to a so-called special servicer hired to work out problem loans in the pool. That hasn’t happened yet with the Hotel Burnham loan.

The hotel could cover its monthly payments if necessary, Mr. McCaffery says, but “you can’t get their attention until you default.”

The loan is in GG10 and has a 0.81x NCF DSCR (despite what the story says about the "Bloomberg data" where the property is cash flowing) - the NOI DSCR is 1.01x for the 1Q 09 TTM.

Terranea Resort Defaults - Lowe's turns in the keys

The lender was Cascade (which may go unnoticed). It was driven by Corus, which is in the process itself of failing...

Lowe’s default to Kirkland, Washington-based Cascade came after Corus Bankshares Inc. of Chicago, Lowe’s construction lender, failed to supply a final $12.5 million payment to the developer, Diehl said. Corus said this month it may shut down as the bank’s nonperforming loans left it below capital levels required by U.S. regulators.
An $8 million loan to Lowe’s from the city of Rancho Palos Verdes has been delayed pending resolution of the company’s finances, Diehl said.
Corus didn’t fund Lowe’s loan because the Terranea project was “out of balance by millions of dollars” and the loan agreement required Lowe to raise additional equity capital before Corus made more payments, Dwight Frankfather, a Corus senior vice president, wrote in an e-mail. He declined to provide further details.
Calls to Cascade weren’t immediately returned.

A room with a king-size bed and ocean view showed a daily rate of $392 for an Aug. 21 through Aug. 23 stay, according to the Terranea Web site. The hotel is situated on 102 acres on the former site of the Marineland of the Pacific theme park, south of Los Angeles.

WSJ "reports" More Hotel Jingle Mail

The WSJ put out an article on hotel defaults.

One major factor in the foreclosures: Many hotel loans are difficult to restructure because they were packaged into commercial mortgage-backed securities, or CMBS, which combine hundreds of property payments into one single bond. With scores of investors owning those bonds, it is extremely hard to cut a new deal to keep the hotel in owners' hands.

"There is no one person or two people that can really represent the interests of the borrowers and strike a deal," said Art Buser, chief executive of Sunstone Hotel Investors Inc., which is forfeiting one hotel and has put lenders on notice that it might do so with others.

This argument is getting tired. The investors own debt obligations of a Trust, of which, the hotel loan serves as collateral and has signed a contract obliging it to make monthly debt service payments as a result of putting a mortgage on their property. There is just ONE, 1, UNO, entity that they have to talk to in order to get debt relief or modify their loan - it is called the Special Servicer. Typically, the Master Servicer handles sending out bills and receiving payments, and as soon as it gets more complex than that, they engage the Special Servicer, who does heavy lifting such as loan modifications, foreclosures, appraisal and property management engagements, etc. The Special does not necessarily get engaged solely because a property is delinquent either - i.e. you can negotiate to prevent default! wow, that's surprising. Maguire did it just the summer with his Solana complex in Westlake - the master servicer said, and I quote, "transferring to special servicer for imminent default".

The borrowers (he lost the W San Diego a few weeks ago) are either lying to themselves, or have been lied to by whomever was charged with the task of contacting the servicer. There is precisely "ONE PERSON" who he needs to deal with. That is a simple fact. They're not even hard to find, and they're name and phone number can easily be looked up in your monthly statement (if you're Art Buser) or in Bloomberg on the CF page of whatever deal the loan is in, or on the free Edgar search site for SEC filings, or at the Trustee's free website (either Wells or LaSalle). So, just stop it with this tired argument. You're lying to us, you're lying to yourself, and you're lying to whomever your trying to get out from under your debt obligation with! Liar, Liar, pants on fire!

Further, hotels have always been the most volatile CRE sector - always. As one response to the article noted, none of this is a surprise. Hotels by their nature are susceptible to economic downturns (tight wallets equal less travel), are more quickly impacted by changes in rental rates (because leases roll nightly), and were way over-priced and over-levered. I don't have a crystal ball, but I remember a lot of conversations back in 2006 and many more in 2007 where we looked at hotel loans that didn't make any sense - we frankly couldn't believe the Extended Stay deal that Lightstone is "burdened" with now. It's hard to feel sorry for the investors because they were either too greedy or too dumb, but it's even harder to feel sorry for the sponsors - they're supposed to be professional real estate investors combing through the fine details of their contracts. They took out a CMBS loan in the first place aware of it's restrictions, but in favor of the easier process and lower rate, and now they cry foul.

*UPDATED*

RevPAR continues down...

Hotel RevPAR down over 16 points...

Among the Top 25 Markets, New Orleans, Louisiana, reported the largest occupancy increase, up 4.7 percent to 70.4 percent. Nashville, Tennessee (+0.9 percent to 64.4 percent) and Oahu Island, Hawaii (+0.9 percent to 84.9 percent) were the only other markets to experience an occupancy increase. Detroit, Michigan, reported the largest occupancy decline, falling 18.5 percent to 55.0 percent, followed by St. Louis, Missouri-Illinois (-16.4 percent to 63.7 percent).

Atlanta, Georgia, came in virtually flat for the week with a 0.5-percent decrease in ADR to US$89.36, reporting the smallest decrease among the top markets. New York, New York, experienced the largest ADR decrease, falling 28.3 percent to US$187.59. Two other markets posted ADR declines of more than 15 percent: Oahu Island (-16.5 percent to US$153.10) and San Francisco/San Mateo, California (-16.2 percent to US$131.43).

Two of the Top 25 Markets reported RevPAR decreases of less than 5 percent: Atlanta (-4.1 percent to US$54.90) and New Orleans (-2.5 percent to US$69.90). New York experienced the largest RevPAR decline, dropping 33.1 percent to US$157.45, followed by St. Louis (-26.4 percent to US$51.12) and Detroit (-26.4 percent to US$43.02).

Slow...

14:15 + Hotel Loan Defaults Double as Recession Cuts Travel (Update2)
14:11 CRE News [Reg]: (Free) CMBS Market Tapped to Refi Maturing Cell Tower
14:10 Midtown NYC Office Vacancies Hit 15% for Best Space (Update1)
13:25 *MIDTOWN OFFICE RENTS FELL TO $73.10 A SQUARE FOOT, BROKER SAYS
13:25 *MIDTOWN `CLASS-A' OFFICE VACANCIES DOUBLED FROM DECEMBER 2007
...
13:16 + Street Insider: Fitch Affirms LNR Partners' Special
13:14 + Street Insider: Fitch Affirms Prudential Asset Resources'
...
12:42 Commercial-Mortgage Delinquencies Rise to 4.07 Percent in June
12:28 Fitch Affirms LNR Partners' Special Servicer at 'CSS1-'
12:25 *FITCH AFFIRMS PRUDENTIAL ASSET RESOURCES' CMBS SERVICER RATINGS

Nothing to see here, keep moving along...

Red Roof Inn Defaults

Accor (owner of Motel 6) sold RRI for $1.3 billion back in 2007 to Citigroup's Global Special Situations Group (GSSG), Westmont Hospitality Group ("Westmont"), and Westbridge Hospitality Fund, and partially financed that with 2 pari passu loans spread across 4 CMBS deals totaling $366 million. The rest of the senior mortgage ($655mm) didn't make it into a CMBS, and is likely on Citi or Bear's books, but it's not clear, and there is also some mezz debt ($164mm). That put's the new owners' equity at about 8 or 9 % of the purchase price. See the WSJ article for more.

The CMBS loans:
CGM RRI Hotel Portfolio - CD 2007-CD5 and CGCMT 2008-C7, 52 properties, $103mm

RRI Hotel Portfolio - BSCMS 2007-PW17 and BSCMS 2007-PW18, 79 properties, $263mm

UPDATE: Corrected the ownership structure.

Hyatt Regency Boston Trades for $220k per Key

CoStar reports the Hyatt purchased the hotel for $110 mm from Host.

Hyatt Corp. has purchased the Hyatt Regency in downtown Boston from Host Hotels & Resorts for $110 million, or more than $220,000 per room, CoStar has confirmed.

The 22-story hotel has 498 rooms at 1 Avenue De Lafayette, a few blocks east of Boston Common. It was constructed in 1984 and renovated in 2001, and earned the government's Energy Star label in December for its energy efficiency. It includes a business center, fitness center, indoor pool and a spa, and a steam room and sauna.

Please see CoStar COMPS #1663405 for additional information.