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Doubling down: Bellagio loan makes return to CMBS market

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As Las Vegas opens back up to tourists amid the coronavirus pandemic, MBS investors are being asked to once again roll the dice on a casino and resort property loan.

Blackstone Group’s real estate investment trust has launched a new $617.9 million commercial-mortgage securitization. Included among the 36 loans in the conduit deal is a share of the $4.25 billion debt package used to fund MGM Resort International’s sale-leaseback arrangement with Blackstone last fall for the Bellagio Hotel and Casino.

A hotel sighting within the collateral pool of a commercial-mortgage securitization has been a rare sight since the onset of the COVID-19 outbreak this spring in the U.S., with most issuers bypassing the inclusion of lodging and retail properties over concerns about whether owners can maintain bond payments after the steep drop in travel and consumer spending.

With more than $424 million in 2019 net cash flow for Bellagio, plus guaranty backing from MGM, the risk from $61 million loan participation appears time despite taking up nearly 10% of the BANK 2020-BNK27 Mortgage Trust pool.

Still, the transaction’s risks were mitigated from a large cross-section of property types with lower historical levels of borrower defaults – including portfolios of self-storage property loans representing more than 20% of the portfolio balance.

“Hotels are the commercial real estate sector's hardest hit by the immediate economic fallout from the coronavirus outbreak, given its sensitivity to consumer demand and sentiment," Moody’s noted in a report. For example, the agency noted revenue-per-available-room for U.S. hotels declined 83.6% on a year-over-year basis the week ending April 11.

The $61 million Bellagio loan is part of a $1.62 billion loan negotiated for the $4.5 billion acquisition of Bellagio by Blackstone Real Estate Investment Trust, a deal spurred by activist shareholder pressure last year for MGM to unload company-owned casinos, according to Bloomberg. The Bellagio Hotel and Casino loan has been previously syndicated out to nine other conduit deals.

The Bellagio loan's strong net cash-flow characteristics include a 1.55x NCF to rent ratio, and it was also current as of the June debt service payment. The loan is not subject to forbearance or modification request, according to presale reports from Moody’s and Fitch Ratings. The property reopened alongside other Las Vegas Strip properties on June 4 with limited amenities.

Both Moody’s, Fitch and Kroll Bond Rating Agency have assigned early triple-A ratings to the senior notes in the deal.

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