JP Morgan is the second issuer this week to announce a large loan CMBS secured by hotel properties.
Kroll Bond Ratings assigned preliminary ratings to the deal, which is structured with six tranches that are rated from AAA’ to B’. The notes have a final maturity of June 2029.
The deal, JPMCC 2014-INN, is backed by a commercial mortgage loan with a principal balance of $635.0 million. The floating-rate loan was originated in June 9, 2014 by JPMorgan Chase Bank, National Association. It has an initial two-year term with three, one-year extension options and requires monthly interest-only payments based on one month LIBOR plus a spread of 2.2305%.
Among the 47 lodging properties that secure the loan are 36 extended-stay properties, nine limited-service properties and two full-service properties. The properties are operated by Residence Inn by Marriott (30 properties, 60.8%), Hyatt House (five properties, 13.0%), Hampton Inn (five properties, 9.8%), Courtyard by Marriott (three properties, 7.2%), Westin (one property, 3.7%), Sheraton Four Points (one property, 3.6%), Sheraton (one property, 1.1%) and TownePlace Suites by Marriott (one property, 0.8%).
The assets were built between 1929 and 2006 and renovated from 2008 to 2013. The loan sponsors are two publicly traded REITs: NorthStar Realty Finance Corp. and Chatham Lodging Trust.
Since 2008, the property owners have spent approximately $116.2 million ($19,061 per key) on capital improvements across the portfolio. The sponsors have budgeted an additional $131.6 million of capital improvements for 2014 to 2018.
According to KBRA, the in-trust loan-to-value is 89.7%, which is relatively high given that the deal is a single borrower CMBS securitization. An additional $205.0 million of existing mezzanine debt is held outside the trust, resulting in an all-in stressed KLTV of 118.7%.
“Higher leverage implies lower borrower equity levels and higher default probability,” explained analysts in the KBRA presale report.” Should a default occur, the presence of additional debt could introduce additional creditors that could attempt to exercise remedies that are adverse to the trust, or support a bankruptcy plan that is adverse to the trust’s interests”.
The loan is also interest-only for its entire term so it won’t deleverage due to the absence of amortization. KBRA views amortization favorably, as the scheduled deleveraging that occurs from amortization reduces KLTV during the term of the loan and results in reduced term and maturity payment defaults.
