Blackstone, Starwood Land $2B CMBS Deal For 220 Hotels
Blackstone and Starwood Capital Group are turning to the public market to refinance nearly $2B in hotel debt.
ESH Hospitality, which is owned by the two investment giants and operates hotels under the Extended Stay America flag, is planning a $1.94B CMBS offering covering the debt on 220 properties in 33 states.
The first lien debt is expected to be originated by a consortium of banks. The commercial mortgage businesses of JP Morgan Chase and Citi would each cover a quarter of the debt, with the remainder originating from Goldman Sachs, Wells Fargo, Bank of America and a Deutsche Bank affiliate.
There’s no expected offering date, but a note in a KBRA loan analysis suggests the CMBS package will close before the end of November.
The debt for the 24,560-key portfolio is underwritten at an 8.27% capitalization rate and a 65.4% loan-to-value ratio. The CMBS loan's Class A offering is rated AAA by KBRA with Class F shares rated BB+.
The interest-only loan has an initial two-year term with options for three one-year extensions that the KBRA analysts expect will be exercised. The estimated spread is 250 basis points above the secured overnight financing rate.
Starwood and Blackstone, which holds its interest in the hotels in its Blackstone Real Estate Partners affiliate, will be required to enter into an interest rate cap agreement at a strike rate no greater than 7%.
Interest rate caps are effectively insurance that the sponsor pays in exchange for a third party paying any debt service costs above the strike rate. The debt is expected to have a 0% SOFR floor.
The portfolio is spread across 57 cities and accounts for 31% of the 703 Extended Stay America hotels. Half of the properties by square foot are in Florida, California, New Jersey, Maryland and Massachusetts.
The average property age is 25 years old, and they range in size from 68 to 161 doors. The hotels have had lackluster performance over the last five years, with the KBRA analysts attributing the fluctuations to pandemic disruptions.
Occupancy for the trailing 12 months was 77%, with revenue per available room at $60.13.
The global hotel sector has been defined by bifurcation in recent quarters. The luxury segment continues to drive rates as well-heeled travelers book stays, while mid-scale and economy hotels have struggled to fill rooms as their customer base tightens their budgets.
