An upscale oceanfront hotel and casino on the island of Aruba that went through a foreclosure in 2012 is being refinanced in the commercial mortgage bond market.
The current owner of the Renaissance Aruba Resort & Casino, a joint venture between DLJ Real Estate Investment Partners and MetaCorp International, has obtained a $195 million mortgage from Cantor FItzgerald; proceeds along with $10 million of equity, are being used to repay a $160 million mortgage taken out in 2013 and buy out two other part owners, Five Mile Capital Partners and Caribbean Property Group, for $38.5 million, and pay closing costs.
CPG originally owned 100% of the property but its stake was written down to 11.6% when it defaulted on a mezzanine loan; Five Mile, the mezzanine lender, had that debt converted debt into equity.
Following the sale, Five Mile will retain a $23.5 million preferred equity position.
The 411-key hotel, which operates under the Marriott flag, is situated on a 10.1-acre site on the northern end of the island along Palm Beach, a two-mile strip of beach known for its white sand and turquoise waters where the majority of the upscale hotels on the island are located, according to DBRS.
The collateral also includes the Stellaris Casino, the largest casino on the island, comprising 17,000 square feet and featuring 523 slot machines and 27 gaming tables, as well as nine food and beverage outlets, 93,269 sf of meeting space, two outdoor pools, a fitness center and four retail stores. The casino currently accounts for 27.2% of total revenue.
For purposes of the local law, the loan in the securitization trust is a “mirror loan” that is not secured by the property itself, but rather by another loan with the same principal balance, payment dates, maturity date and interest rate. This structure is designed to eliminate the profits tax due to the holder of the mortgage loan, and it standard for securitized loans in Aruba, according to DBRS. The government of Aruba owns a majority of the island of Aruba and levies a profit tax upon non-Aruban lenders on mortgage properties secured by properties located in Aruba, and if the mirror loan were pledged to the trust, a profit tax would be triggered.
This means that the trustee of the transaction does not have the right to directly foreclose on the property, though it has the right to direct the Aruban mortgage lender to foreclose on the mortgage loan and pay the proceeds to the trustee.