Lone Star Funds is tapping the commercial mortgage bond market for a cashout refinancing of a portfolio of 38 Hyatt-branded hotels.
The private equity firm obtained $582.5 million in financing from Goldman Sachs and J.P. Morgan, consisting of a $410.0 million first mortgage and $172.5 million of mezzanine debt. Proceeds were used to refinance $510 million of debt that was originated in 2015, including a $340 million mortgage securitized in HYATT 2015-HYT; return $52.2 million of equity to the sponsor; establish $7.9 million of upfront reserves; and cover closing costs of $15.4 million.
Lone Star Real Estate Fund III holds the property through a joint venture with Aimbridge Hospitality; all 38 properties are managed by Aimbridge, which has a 5% stake in the joint venture. The sponsors will have more than $120.7 million of cash equity remaining in the assets.
The first mortgage, a three-year, floating-rate loan that pays one-month Libor plus 3.30%, and no principal, can be extended by one year up to two times for a total term of five years. It is being securitized in a transaction called Hyatt Hotel Portfolio Trust 2017-HYT2.
DBRS expects to assign an AAA to $124.5 million of Class A notes, which benefit from 68.04% subordination, as well as to $44.6 million of Class B notes with 56.57% subordination.
Among the strengths of the deal, according to DBRS, is the geographic diversity of the portfolio. The 38 select-service and extended-stay hotels have a total of 4,950 rooms, or “keys,” located in 21 different states. The 27 select-service hotels operate under the Hyatt Place flag, while the 11 extended-stay hotels operate under the Hyatt House flag.
The rating agency also takes comfort from the fact that the owners have invested $55.2 million ($11,155 per key) in improvements to the properties, which were built between 1990 and 2013 with an average age of 18 years. Revenue per available room has increased by 12.5% from the 12 months ending October 2014 to the 12 months ending July 2017.