J.P. Morgan is marketing $235 million of mortgage bonds backed by a single loan collateralized by a portfolio of 63 Value Place extended-stay hotels, according to rating agency reports.
The owner, WoodSpring Hotels Holdings , jointly owned by LG VP Holdings, founder Jack DeBoer, and other investors, used to mortgage loan to cash out $68.8 million of equity in the hotel portfolio.
Hotels are considered one of the riskier types of commercial property, because cash flows tend be more volatile, as revenues are typically generated from daily leases. However, Moody’s Investors Service notes in its presale report that Value Place hotels are a kind hybrid between long term lodging and residential; the average length of stay is approximately 29 days.
Although the portfolio is concentrated in one property type, it is geographically diverse as the 63 properties contain a total of 7,557 guestrooms and are located across 20 states. The largest asset represents only 2.9% of the total allocated loan amount. The largest state concentration is Florida, which is home to 13 of the properties across 10 metro areas (approximately 23.9% of the total).
Moody’s also cites the experience of founder and minority owner Jack DeBoer, as a strength of the deal, dubbed Chase Commercial Mortgage Trust 2016-WSP. “DeBoer has 30+ years of experience in the extended-stay hospitality sector and has a successful track record of developing the Residence Inn, Summerfield Suites and Candlewood Suites brands,” the presale report states. It notes that these three brands were subsequently sold to Marriott Corp., Hyatt Corp., and InterContinental Hotels Group, respectively.
However, the hotel portfolio is highly leveraged. In addition to the $235 million first mortgage it is encumbered by a $40 million mezzanine loan that does not collateralize this deal. Moody’s puts the in-trust loan-to-value ratio at 107.2%.; including the mezzanine loan, this rises to 125.5%.
Moreover, the mortgage pays only interest, and no principal, for its entire term, meaning it will not amortize.
The portfolio’s guestroom and common area amenity offering is of lower quality than most hotel portfolios that Moody’s has previously rated. As the name suggests, Value Place operates in the economy category of the extended-stay hotel sector which commands the lowest rates, below $50 a day, on average.
The weighted average age of the properties is 7.4 years (built between 2005 and 2015); however, no significant renovation has occurred since construction.