KSL Capital Partners is sponsoring a $161.5 million commercial mortgage-backed securitization for the Margaritaville Hollywood Beach Resort, a luxury Florida resort beset by squabbling between the city and the original developers.
The Denver-based private equity firm’s deal, dubbed Margaritaville Beach Resort Trust 2019-MARG, will include a $49.3 million cash-out equity stake for KSL, or about one-fourth of the original debt stemming from its April 2018 acquisition of the Jimmy Buffett-themed hotel located on the 2.5-mile boardwalk in Hollywood Beach.
The single-loan, single-borrower transaction includes a Class A senior-note offering of only $49.9 million, or less than half the size of the combined subordinate tranches ($99.1 million) and $12.5 million in horizontal risk-retention stakes, according to a Fitch Ratings presale report published Monday.
Fitch and DBRS have each assigned an expected AAA rating to the Class A notes, along issued split investment-grade ratings on the junior tranches: AA-/AA(high) for the $11 million in Class B notes, A-/AA(low) for the $7.9 million Class C tranche and BBB-/A(high) for the $12.2 million in Class D notes.
DBRS also assigned a BBB (low) to the Class E notes ($30 million), a BB (low) for the Class F notes ($23 million), and a B(low) for the $15 million in Class G bonds. Fitch did not issue ratings for the lower subordinate notes.
Fitch and DBRS also assigned BBB/AA(low) ratings to $81 million in two class of interest-only notes.
The transaction will be secured by the leasehold interests in a single two-year, floating-rate interest-only mortgage loan issued by JPMorgan Chase. The loan includes three optional one-year extensions. JPMorgan is the lead manager and bookrunner for the CMBS deal, with Deutsche Bank serving as co-manager.
Although recently built, in 2015, the 17-story hotel will undergo $1.8 million in renovation financing that will add 20 extra rooms to the existing 349-room count. Those renovations involve reconfiguring the added space from two large luxury suite offerings, including centerpiece Jimmy Buffett Suite. (Another suite will be renamed for the musician, whose 1977 hit song is the inspiration for the hotel’s name.)
Fitch notes that property has had improving revenue since opening four years ago. The four-diamond rated property (by AAA) had a trailing 12-month revenue-per-average-room (RevPAR) nightly rate of $232.03 as of March 2019, compared to $196.45 RevPAR for six competing full-service luxury hotels in Hollywood and Fort Lauderdale.
Fitch estimates a debt service coverage ratio of 0.81% and an LTV of 129.5% for the mortgage, not including $18.5 million in mezzanine financing held outside the trust.
“The resort has benefited from new management and implementation of cost savings initiatives following the sponsor’s 2018 acquisition of the property,” Fitch’s report stated.
KSL Capital Partners acquired the resort in April 2018 for $194 million from a joint venture helmed by local real estate developer Lon Tabatchnick (the Lojeta Group) and Starwood Capital Group of Greenwich, Conn.
The sale became contentious last year, as the city of Hollywood claimed the original developers owed the municipality $1.71 million from the proceeds of the KSL sale, as part of a profit-sharing agreement upon a sale of the resort. (The hotel land property is owned by the city, which holds a 99-year lease agreement with Margaritaville Hollywood Beach Resort.)
Last November, Tabatchnick filed a lawsuit against the city’s claim, stating the property sale resulted in no profit for the joint venture between Tabatchnick and Starwood, according to published reports.
