The latest single-asset commercial mortgage securitization to hit the market is backed exclusively by extended-stay hotels, according to a presale report published by Standard & Poor’s.
The deal, BLCP Hotel Trust 2014-CLRN, is collateralized by a $570 million two-year, floating-rate commercial mortgage with three one-year extension options, secured by the fee and leasehold interests in 47 extended-stay hotels.
JPMorgan Chase Bank and German American Capital Corp. originated the loan. The transaction has 47 borrowers, each of which is a bankruptcy-remote special purpose vehicle sponsored by a fund that is controlled by the Blackstone Group, the private equity firm that owns Hilton Hotels Corp., La Quinta Inn & Suites, Motel 6, and Wyndham Hotels & Resorts.
The hotels operate under two different national brands, Marriott's Residence Inn (75%) and Hilton's Homewood Suites (25%).
The securitization trust will issue a $189.3 million tranche of notes with a preliminary AAA’ rating from S&P, a $69 million AA- rated tranche, a $51.3 million BBB- rated tranche, a $73.9 million BB- rated tranche, and a $73.5 million tranche with a B- rating.
S&P considers lodging to be among the riskiest property types due to the daily nature of their pricing structure, significant operating component, and higher expense ratio relative to other property types. However the portfolio is geographically diverse, as the hotels are located in 18 states
Among the transaction’s other strengths, according to S&P, is the low debt service coverage, as calculated by the rating agency, of 1.64x. That’s based on the loan’s 2.12% spread plus the 4.0% LIBOR cap and S&P's net cash flow for the portfolio, which is 8.96% lower than the issuer's.
Weaknesses include the high leverage of the loan, which has a loan-to-value ratio of 93.3%, higher than for most single-borrower transactions rated by S&P recently. Also, the mortgage pays only interest for its entire five-year extended term, meaning there will be no scheduled amortization during the loan term.