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Blackstone taps CMBS to refinance portfolio of 17 hotels

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A real estate investment trust controlled by the Blackstone Group is tapping the mortgage bond market to refinance of 17 hotels it acquired over the past 12 months.

Blackstone Real Estate Income Trust (BREIT), a privately held REIT, obtained a $257 million mortgage from Barclays; the loan is secured by the fee simple interest on 16 hotels and the leasehold interest on one hotel with a total of 2,189 rooms across seven states.

This loan, which pays only interest and no principal, for its entire extended term of five years, is comprised of seven component notes with stated principal balances ranging from $21 million to $96.4 million. It serves as collateral for a transaction called BBCMS Trust 2018-BXH. Moody’s Investors Service and Morningstar Credit Ratings expect to assign triple-A ratings to the $91.8 million tranche of senior Class A notes.

Among the strengths of the deal, according to the rating agencies, is the BREIT’s experience as a sponsor. As of June 30, the REIT had approximately $8.9 billion of total assets with a diversified portfolio consisting of 314 commercial real estate assets. It paid a total of $428.5 million ($195,742 per room) for the portfolio, and after the recapitalization of the portfolio, inclusive of closing costs, it has approximately $176.8 million cash equity remaining in the properties.

The age of the properties is also a positive. The hotels have an average age of 12 years, and although the collateral improvements were constructed across a wide range of dates between 1974 and 2016, they have been regularly refurbished since development, per Moody’s. Approximately $14.9 million ($6,797 per key) was spent on hotel updates since 2015 and an additional $14.4 million ($6,584 per key) is planned for future updates scheduled to be completed through 2023.

Moreover, all the hotels operate under a global hotel franchise and benefit from the respective brand’s reservation systems and national marketing efforts. Five hotels (40.6% of the ALA) operate under the Hyatt franchise and are flagged as Hyatt Place or Hyatt House. Six hotels (31.5% of the ALA) operate under the Marriott franchise and are flagged as Townplace Suites, Courtyard, Aloft, Springhill Suites, or Fairfield Inn & Suites. Six hotels (27.9% of the ALA) operate under the Hilton franchise and are flagged as Hampton Inn & Suites or Hilton Garden Inn.

However, all franchise agreements expire after the fully extended loan term.

The properties are generally well-positioned within their respective market: The portfolio reports stable historical cash flows and penetration rates. As of the trailing 12 months ended in July, the three-year average revenue per available room (RevPAR) penetration rate for the portfolio was 106.7%. Twelve properties representing 68.2% of the allocated loan amount reported a RevPAR penetration rate above 100.0%. The three-year portfolio occupancy, average daily rate and RevPAR for the portfolio were 81.7%, $142.98, and $115.96, respectively.

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