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Fixer-upper: Hotel investor to fund upgrades through $484M CMBS

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Commercial real estate investment firm Clarion Partners will tap the CMBS market to help finance a multiyear renovation of older hotel properties it co-owns through a joint venture.

According to ratings agency presale reports, New York-based Clarion, an affiliate of global asset manager Legg Mason Inc., is sponsoring a $484 million single-borrower securitization backed by a new five-year commercial mortgage loan package for the 52-hotel portfolio.

The loan held by the COMM 2020-CBM trust is part of a whole-loan package that also features a $200 million companion loan; the loans refinance $576.4 million of existing debt, as well as fund the initial $99 million reserve account that will kick-start a systemwide property improvement project.

The old debt was previously issued when Clarion collateralized the portfolio for a 2015 CMBS deal. Clarion co-owns the portfolio of branded hotels through a joint venture with an undisclosed pension fund; all of the properties are managed by Marriott International, and carry the Courtyard by Marriott flag.

The notes will secured by the first-priority mortgage that includes the borrower’s fee simple interest and/or leasehold interests in the hotels. The transaction’s capital stack offers nine classes of senior and subordinate notes, plus commercial paper tranches.

The top two senior-note tranches totaling $58.5 million and $89.6 million each carry triple-A ratings from Moody’s Investors Service and DBRS Morningstar.

Clarion has spent more than $370.4 million in upgrading the properties since acquiring the hotel portfolio in 2005, an average of $48,253 for the 7,677 rooms. But the firm plans to invest at least $221.7 million more over the next four years. Clarion pledges to make monthly deposits into the property improvement account during that period.

Moody’s noted in its report that the properties being renovated have an average age over 32 years, with the newest property built in 1990.

The “overall construction quality and fit and finish is at the lower end of the spectrum for hotels” in CMBS deals rated by Moody’s, the report stated. But the planned renovations, as well as work already completed by Clarion, ensure “the properties are in position for the Courtyard by Marriott target market and appropriate for the hotel’s respective markets.”

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