The Dream Downtown hotel opened its doors in June 2011 to much fanfare. Mermaids swam in the pools and stilt walkers and fire throwers mingled among the celebrities who attended the opening festivities. Its prospects appeared bright, given New York City's booming hotel business, the property's prime location in Manhattan's hip meatpacking district and the extensive hotel-industry experience of its owners.

Even so, including the property in a $1.3 billion CMBS deal launched this spring, when the hotel had officially been open less than a year, raised eyebrows among institutional investors and credit rating agencies. Adding to concerns, the loan backing the hotel carried a relatively high loan-to-value (LTV) ratio and an interest-only (IO) structure - features that were prevalent in CMBS offerings before the market's collapse in mid-2008 and have contributed to a jump in the delinquency rate of those so-called legacy deals this year.

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