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Red Roof owners refinancing through single-borrower CMBS

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The Singapore-based owners of a portfolio of U.S. Red Roof Inn budget hotels are returning to the commercial mortgage bond market to refinance $400 million of debt securitized in 2015.

Westmont Hospitality Group (through two affiliates) has secured a $360 million first mortgage and $40 million mezzanine loan from Barclays and Morgan Stanley that is secured by a portfolio of 89 Red Roof locations in 25 states. Proceeds were used to refinance debt taken out in 2015 to buy out a Stamford, Conn., firm that partnered in Westmont’s $575.5 million acquisition of the Red Roof franchise in 2011.

The first mortgage, which pays only interest, and no principal, for its entire term, is being used as collateral for a transaction dubbed BBCM Trust 2018-RR1, The $111.2 million tranche of Class A notes to be issued carries preliminary triple-A ratings from S&P Global Ratings and DBRS. The Class B tranche of notes totaling $40.6 million carries an AAA rating from DBRS, but only an AA- from S&P.

Two series of Class X notes sized at $110.6 million apiece will pay interest-only, carrying split ratings of BBB- from S&P and A from DBRS. (The Class X notes supersede the B notes in the payment waterfall.)

The transaction will also issue five additional classes of subordinate notes totaling $248.2 million, with ratings ranging from A- to B- (S&P) and AA to B from DBRS.

The hotels in the portfolio backing the two-year loan (with three renewable options) are older hotels, averaging 29 years of age and located primarily in secondary/tertiary markets, according to presale reports.

But Westmont has poured nearly $97 million in major renovations on all the properties, including 25 that had extensive furnishing and bathroom upgrades. The portfolio includes Red Roof’s standard hotel brand as well as the premium design Red Roof+ hotels.

The sponsors hold about $150 million cash equity in the properties, which have an appraised value of $630 million, according to DBRS.

The 2015 transaction , also underwritten by Barclays, involved all of the same properties. The new offering, along with the mezzanine debt and $9.6 million of borrower equity, refinances $445.3 million debt originated for that deal.

The loans are issued to special-purpose entities that are 80% owned by Westmont affiliate Bestford Capital Pte., an investment management firmed owned by the high-net-worth Tan family in Singapore. The remaining 20% of the borrower ownership stakes are through WHG affiliate Westmont Investments, according to presale reports.

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