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Owner of InterContinental Boston hotel refinancing in CMBS market

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The owner of the Intercontinental Boston, a 424-guestroom luxury hotel that opened in the city’s financial district in 2006, is refinancing in the commercial mortgage bond market, according to S&P Global Ratings.

Extell Development has obtained a 119-month, fixed-rate loan totaling $110 million and two mezzanine loans totaling $140 million from Natixis. Proceeds were used to repay existing debt of $209.2 million, and to fund $4.9 million of closing costs and a $10 million rent step-up reserve. The borrower, which constructed the property for $173.6 million, will also receive a $40.9 million return of equity.

The senior mortgage is being used as collateral for an offering of mortgage bonds called Natixis Commercial Mortgage Securities Trust 2018-SOX. S&P is rating only two of the tranches; it has assigned a preliminary AAA to the senior $33.5 million tranche, which it expects could be repaid even if the value of the property declined by 90.2%, and an AA- to a $13.8 million tranche that could withstand an 86.1% market decline.

The bonds are secured by fee simple interest in the property itself (which is one unit of a three-unit condominium) and by the collateral assignment of the borrower's interest in the leases and rents associated with the property, according to S&P.

Among the strengths of the deal, according to the rating agency, is that the trust loan has “strong” debt service coverage ratio of of 2.13x, calculated using the 4.7991% fixed rate and the S&P's estimate of net cash flow for the property, which is 28.3% lower than the owner's estimate. However, the debt service coverage declines to 0.78x when the mezzanine loans are included.

The hotel is operated by the InterContinental Hotel Group, which operates over 5,300 hotels in about 100 countries. The property benefits from its location near Boston's financial district, the seaport and various tourist attractions. Its amenities include large guestrooms, some of which have water views, 32,000 square feet of meeting space, two restaurants, a spa and fitness center, and an indoor pool.

The hotel had a revenue per available room rate exceeding that of its competitors, including luxury hotels such as Four Seasons Hotel Boston, the Ritz-Carlton Boston, and Fairmont Copley Plaza, for the past three years.

The hotel has not had a significant renovation since its construction in 2006. However, it is expected to undergo a $21.2 million renovation starting in December 2018 through March 2019, which will include renovation of all guestrooms and corridors, as well as the two main restaurants and meeting spaces. However, there is no upfront reserve for this upcoming renovation.

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