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Big Easy investor group taps CMBS to purchase Hyatt New Orleans

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An investor group is financing most of the $398 million purchase of the Hyatt Regency New Orleans in the commercial mortgage bond market.

The investment team includes Gayle Benson, owner of the NFL’s New Orleans Saints and NBA franchise New Orleans Pelicans, as well as a New Orleans real estate development firm Berger Co. that also has interests in local luxury Windsor Court and Omni hotels, according to a presale report issued by S&P Global Ratings.

Benson and Berger, along with a real estate investment arm of private equity firm AllianceBernstein, are funding the acquisition with proceeds from a $73.9 million of equity as the $325 million loan securing the New Orleans Hotel Trust 2019-HNLA transaction.

The group plans to spend another $30 million out of pocket for upgrades and renovation at the 43-year-old downtown New Orleans landmark.

The $325 million loan has an initial term of two years and pays only a floating rate of Libor plus 2.65%, and no principal, for its entire extended term of up to five years.

The borrowing entity created for the transaction will secure the loan with leasehold interests in the 32-story hotel over the expected five-year term of the loan originated by Wells Fargo and Bank of America.

S&P considers the deal to be highly leveraged; it puts the loan-to-value ratio at 116.4%, which is higher than the LTV based on the assessed property value.

Seven tranches of term notes will be issued, including a $90.7 million Class A tranche with preliminary AAA ratings from S&P. The borrowing group will hold $16.3 million in unrated, residual notes for risk-retention purposes.

The purchase of the hotel, which is adjacent to the Mercedes-Benz Superdome and the Smoothie King Center arena in the New Orleans central business district, was announced April 3 by GMB Properties, the real estate company owned by the Benson family. The hotel has a management agreement to operate under the Hyatt brand through December 2031. The hotel now has local ownership for the first time since it was built in 1976. It was closed for nearly six years following damages from Hurricane Katrina in 2005, before $270.9 million in renovations completed in 2011 allowed it to reopen.

The hotel has a relatively low 91%-95% revenue-per-available room rate compared to competing hotels in the New Orleans CBD, leaving management to focus on group sales efforts to attract corporate events for the large 200,000 square feet in convention and meeting space — the largest of any hotel in the Big Easy, according to S&P.

Besides further upgrade improvements, the hotel is expected to benefit from increased occupancy from a planned $500 million mixed-use redevelopment of the New Orleans South Market District, including retail, entertainment, restaurants and luxury apartments, according to S&P.

Major events scheduled in the CBD that will also benefit the hotel include the 2020 NCAA college football national championship game, the 2022 NCAA men’s Final Four college basketball tournament and Super Bowl LVIII in 2024.

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CMBS Real estate AllianceBernstein