A consortium of investors including Ares Management is tapping the commercial mortgage bond market for a cashout refinancing of the Hilton Orlando, according to rating agency presale reports.

Ares, along with RIDA Development Corp. and Park Hotels & Resorts, obtained a $475 million loan from JPMorgan Chase and Wells Fargo. Proceeds were used to repay approximately $376.1 million of existing debt, which includes a $345.9 million first mortgage previously securitized in HILT 2014-ORL and $30.2 million of mezzanine debt; pay closing costs and return approximately $90.8 million of sponsor equity.

The loan pays a floating rate of interest and no principal for its entire term, which is initially two years but can be extended by one year up to five times. It is being securitized in a new transaction called The Hilton Orlando Trust 2018-ORL.

The loan is secured by a 19-story full-service hotel in Orlando’s International Drive entertainment district, close to SeaWorld, Universal, Disney and many dining and entertainment options. The Hilton Orlando was constructed in 2009 and has 239,353 square feet of meeting and event facilities, a full-service salon and spa, a large fitness center and six food and beverage venues.

Fitch Ratings assigned a property quality grade of “B+”.

Another strength, according to Fitch, is the hotel’s improving performance. Revenue per available room has grown 11%, or an average of 3.7% annually, since 2014. Net cash flow has improved 28%, or an average of 9.3% annually, over that same period, with a net cash flow margin of 37.7% for the year ended December 2017. The property has benefitted from a strong improvement in food and beverage revenue following recent additions of indoor meeting rooms and outdoor event space. Since 2014, the sponsors have invested approximately $24.5 million for improvements.

However, Fitch considers the transaction to be highly leveraged. It puts the debt service coverage ratio for the trust at 0.99x, and the loan-to-value ratio at 106.3%, assuming a “stressed” scenario.

Another potential concerns is the pipeline of new hotels in the area. According to Smith Travel Research, this includes 67 properties with 16,894 rooms, or 13.6% of existing inventory in the Orlando market. Much of the area’s development activity consists of limited-service offerings such as Fairfield Inn, Holiday Inn Express and Hyatt House, though they are not expected to compete directly with the subject hotel.

RIDA, which has a 40.8% interest in the hotel, was founded in 1972 and is a global developer of hospitality, office, residential, industrial, mixed-use and retail projects. Ares, with a 39.2% interest, is a global alternative asset manager with approximately $10 billion of assets under management as of June 30, 2017. Park Hotels & Resorts, with a 20% interest, is one of the largest publicly traded lodging investment trusts, with a portfolio that includes 67 luxury and upper-scale hotels and resorts with more than 35,000 rooms primarily located in the U.S.

The property is managed by Hilton Management under a long-term management agreement.

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