The Blackstone Group is making another trip to the commercial mortgage bond market to refinance a luxury hotel. This time it’s the JW Marriott Phoenix Desert Ridge Resort & Spa, a 950-room, full-service resort.

Blackstone acquired the hotel, reportedly as part of a larger portfolio that included two Orlando hotels, from a consortium led by Paulson & Co. The two Orlando hotels are being refinanced in a commercial mortgage securitization that launched two weeks ago.

Blackstone also obtained a $365 million first mortgage on the Phoenix property from Morgan Stanley; proceeds from this loan, which pays only interest, and no principal, for its entire term of up to seven years, were used to pay off existing debt and cover closing costs. This loan is being securitized in a transaction launched Tuesday called MSC 2017-JWDR.

Blackstone spends $27 million on upgrades to JW Marriott Phoenix

The Phoenix property is further encumbered by a $50 million mezzanine loan that is not part of the collateral for the commercial mortgage bonds.

Fitch Ratings says that this results in a debt service coverage ratio of 0.82x and a loan-to-value ratio of 127.7%, assuming a “stressed” valuation for the Phoenix property, which includes 233,000 square feet of indoor and outdoor meeting and event facilities, two 18-hole golf courses designed by Nick Faldo and Arnold Palmer, a 28,000-square-foot spa, two fitness centers, four pools, as well as tennis courts, hiking/biking trails and pickleball courts.

Fitch considers the property to be “A” quality. Other strengths of the deal include Blackstone’s experience as an owner and the experience of Marriott International, which directly manages the property under an agreement in place until year-end 2025, with options to extend.

Among the risks is increasing competition. Several luxury hotels are in various stages of development within the Phoenix/Scottsdale market, including The Ritz Scottsdale (200 keys with a residential component), the Marriott Phoenix Chandler (264 keys) and the Westin Tempe (264 keys) are all expected to open between the end of 2018 and the second quarter of 2019. The Fairmont Scottsdale Princess, a direct competitor to the subject, added 101 rooms to its inventory in 2016.

"While the lodging industry has seen positive trending performance over the past seven years, it is highly cyclical, and Fitch believes the industry is in the twilight of this upcycle," the presale report states. As of December 2016, STR reported that the luxury chain segment saw declining occupancy of 0.3% from 2015 to 2016, but a 2.0% increase in ADR during the same period, resulting in RevPAR growth of 1.6%.

Fitch expects to assign an AAA rating to the senior tranche of the deal, which benefits from 68.44% credit enhancement.

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