The new commercial mortgage for one of Hawaii’s largest hotel properties is being securitized in a single-asset transaction underwritten by JPMorgan.

JPMorgan Chase Commercial Mortgage Securities Trust 2016-WIKI is issuing notes secured by a new $400 million mortgage taken out for the Hyatt Regency-Waikiki Beach Resort & Spa, a 1,230 square-foot, 40-year-old oceanfront hotel in downtown Honolulu.

The five-year loan to South Korean ownership group MAPS Waikiki Hotel LLC was originated by JPMorgan, and comes three years after the renovated property’s leasehold was purchased from the Blackstone Group (which had spent $110.5 million on renovations between 2013-2015 on the 40-year-old property).

The trust is issuing six classes of notes as well as two interest-only offerings supported by the loan, which is fixed-rate and interest-only.  The loan is secured by a first-mortgage lean on the borrowers’ leasehold interest.

The Class A notes sized at $138.8 million have a preliminary ‘AAA’ structured finance rating by Standard & Poor’s. The subordinate notes, topped by a Class B structure of $48.2 million in notes, are rated between ‘AA-’ and ‘B-’.

The capital stack also includes interest-only ‘A’ and ‘B’ notes whose notional amount will be reduced by the principal distributions and realized losses allocated to their corresponding class certificates.

S&P says the trust loan balance has a strong debt service coverage ratio of 2.15x, based on the loan’s 4.02% interest rate and S&P’s projected net cash flow. It carries a debt yield of 8.7%, as well.

The Hyatt Regency Waikiki is a two-story tower property that in recent years has improved performance amidst a boom in Oahu hotel occupancy and average daily rate increases. S&P states the region has experienced significant revenue per available room (RevPAR) growth in the last six years, with ADRs growing 46.8% since 2010 (to $219.69 a night) and occupancy levels increasing 7.1%.

One of the factors benefitting Hyatt is the secondary income that the Hyatt resort receives from the 94,333 square feet of retail space in the resort: S&P estimates the three levels of stores accounts for more than 28% of the property’s cash flow, thanks to drawing in non-guest traffic from the highly trafficked Kalakaua Ave. near Waikiki Beach.

But risk factors still abound in the transaction. An appraiser has warned the hotel’s renovations will not likely lead to sustained outperformance, according to S&P. In addition, Hyatt also has a $145 million mezzanine loan not included in the securitization that increases the overall LTV to 127.6%, and decreases all-in debt service coverage to 1.32x.  

“However,” notes S&P, in its presale report, “the loan is subject to an intercreditor, subordination, and standstill agreement between the mortgage and mezzanine lender that significantly restricts the mezzanine lender's rights in such a manner that we did not apply an LTV ratio threshold penalty for this additional debt in our analysis.”

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