Junson Capital, a Hong Kong-based real estate investment company, is tapping the commercial mortgage bond market to finance its acquisition of four full-service hotels Newport, Rhode Island; Alexandria, Virginia; Chicago; and Scottsdale, Arizona with a total of 1265 rooms.
In January, Junson obtained a $179 million first mortgage from Natixis; proceeds, along with $40 million of subordinate debt and $115 million of equity, were used to fund the $334.3 million acquisition, according to Morningstar Credit Ratings.
The first mortgage, which has an initial term of 36 months and can be extended by one year up to two times, is being used as collateral for a transaction called NCMS 2018-RIVA Mortgage Trust.
Midland Loan Services will act both as the master servicer and special servicer.
Among the strengths of the deal, according to Morningstar, are the positive occupancy, revenue per available room and average daily rate trends of the hotels, which are in strong locations near major demand drivers. Since 2012, the portfolio has received $78.9 million in capital investment, which equates to $62,391 per room. Marriott and Hilton directly manage three of the assets in the portfolio, which Morningstar also views as a strength.
In addition, the loan is also backed by a well-capitalized sponsor with deep pockets. Junson Capital has roughly $3 billion under management globally, including investments in nine additional hotels throughout the U.S. and Europe, according to the rating agency.
Based on Morningstar’s underwriting, the portfolio reflects a debt service coverage ratio of 2.11x, with a 12.03% debt yield and a loan-to-value ratio of 73.6%, not including the mezzanine debt held outside the trust.
A potential concern is the fact that two of the properties, the Newport Marriott and the Scottsdale Resort at McCormick Ranch, are affected by seasonality. However, the deal is structured with an up-front seasonality reserve and a cash-flow trap to address potential shortfalls in cash flow.
Another concern is the fact that Scottsdale Resort at McCormick Ranch is an independently owned and operated hotel and is not affiliated with a major hotel brand. However, the hotel is managed by Destination Hotels, the largest independent hospitality management company in the U.S.