Hotels are proving to be some of the most difficult commercial mortgages to refinance as prices level off and lenders tighten underwriting criteria.
Yet the Blackstone Group recently obtained $715 million in loans on the 1,047-room Waldorf Astoria Boca Raton Resort & Club, paying off debt it had taken out in 2013. It also cashed out $136.5 million of equity that it had built up over the past three years.
The biggest part of the new debt package is a $430 million mortgage that pays only interest, and no principal, for its initial two-year term that was underwritten by JPMorgan Chase and Goldman Sachs. It is being securitized in a deal dubbed the Waldorf Astoria Boca Raton Trust 2016-BOCA, according to Fitch Ratings.
Fitch expects to assign an ‘AAA’ rating to the senior tranche, which benefits from credit enhancement of 66.3%.
The previous mortgage was securitized in another deal, BHP 2013-BOCA, that was backed by a total of four properties. Blackstone used the new loan to refinance $55 million of debt backed by another one of the properties, the Hyatt Regency Pier 66. That property is not part of the collateral of the new loan.
The total debt package on the property also includes $285 million of mezzanine financing.
Fitch calculates the debt service coverage ratio and loan to value ratio for the full debt stack to be 0.66x and 165.5%, respectively, in a stressed scenario. Its DSCR and LTV for the debt included in the securitization trust are 1.10x and 99.5%, respectively.
Hotel properties are considered to be one of the riskiest types of commercial real estate because revenues are so volatile. Room rates are repriced nightly and so are very sensitive to economic pressure. The Waldorf Astoria Boca Raton is no exception. In its presale report, Fitch noted that, in 2009, the recent market trough, the resort's revenue per available room was down 40.5% from its 2005 peak.
Nevertheless, real estate prices in Florida have been on a tear, and this is a luxury property. Fitch assigned the resort a property quality grade of “A-minus.” The collateral has both lakefront (Lake Boca Raton) and oceanfront (Atlantic Ocean) land.
It also has amenities that produce revenue unrelated to hotel rooms, include a full-service spa, three fitness centers, 30 tennis courts, 16 food and beverage outlets, two 18-hole golf courses, seven swimming pools including a FlowRider wave simulator, a 32-slip marina and approximately 200,000 square feet of indoor and outdoor meeting space. For the 12 months ended April 2016, these non-room revenues were approximately $64.1 million, representing 29.6% of the property’s total revenues.
There's plenty of competition in South Florida. According to Fithch, the Waldorf Astoria Boca Raton ompetes to varying degrees with eight properties in the region, though it has the most guestrooms and meeting space among this set. Another competitor, a Mandarin Oriental hotel, is planned for the property adjacent to the Waldorf Astoria.
Despite the heavy debt loan on the property, Fitch takes some comfort from Blackstone's experience in commercial real estate; it has approximately $101 billion in properites under management through its opportunistic and debt strategy funds.
Blackstone has also invested $274.2 million in the Waldorf Astoria since acquiring it in 2004.