Tishman Hotel & Realty and Metropolitan Life Insurance are tapping the commercial mortgage bond market to refinance two hotels in in Walt Disney World in Florida.
The sponsors obtained $627 million of loans from Bank of America. Two first-lien floating-rate mortgages totaling $447 million have initial terms of two years and can be extended by a year up to four times; proceeds will be used to refinance existing debt of $385 million, retire $45 million of preferred equity as well as fund closings costs and upfront reserves. In addition, up to $180.0 million of subordinate mezzanine financing will be used, along with sponsor equity, to fund the development of a new boutique resort.
The two senior loans, which pay only interest, and no principal, for their entire extended terms, are being bundled into collateral for an offering of mortgage bonds called BAMLL 2018-DSNY, according to Fitch Ratings.
The cross-collateralized and cross-defaulted loans are secured by the leasehold interests in the Walt Disney World Swan and Dolphin, two adjoining full-service resort complexes located within the Walt Disney World Resort in Florida. The Swan has 756 rooms and the Dolphin has 1,514 rooms, for a total of 2,270 rooms; the mortgages do not permit collateral releases or substitutions.
In addition, the sponsors intend to construct a new resort on a parcel at the Swan property. The new resort is expected to be completed by year-end 2020 and will serve as additional collateral for the Swan mortgage loan.
Among the strengths of the deal, according to Fitch, is the hotels’ central location within one of the most visited tourist destinations in the world – the Walt Disney World Resort, a 47-square-mile resort that houses four theme parks, two water parks, four golf courses, Disney Springs and ESPN World Wide of Sports. The resorts are the only non-Disney-owned and operated resorts in the Epcot Resort Area and are within walking distance to Epcot; Disney’s Hollywood Studios; Disney’s Boardwalk Resort and Disney’s Yacht and Beach Club. The Walt Disney World Resort had over 55.9 million visitors in 2017.
The debt being securitized is also moderately leveraged, in Fitch’s view. The rating agency puts the “stressed” debt service coverage ratio at 1.48x and the stressed loan-to-value ratio at 71%.
In addition, the sponsors plan to spend some $20.3 million ($26,823 per room) over the next few years at the Swan. Planned improvements include renovation and configuration of the lobby, renovation of elevator cabs, replacement of guestroom door locks, upgrades of guestroom doors, pool bar enhancements, upgrades in Il Mulino, Kimono’s and Garden Grove as well as renovations of the meeting space
Risks to the deal include two new resorts that are under construction and are expected to be directly competitive with the subject resorts, the 349-room new boutique resort and a 520-room JW Marriott in Bonnet Creek. In addition, a 500-room expansion at Disney’s Coronado Springs is currently under construction along with a 300-unit Disney Vacation Club known as Riviera. Disney’s Riviera Resort will directly compete with the resorts given its affiliation with the Disney Vacation Club, a vacation timeshare owned and operated by Disney Vacation Development, Inc.
Furthermore, Disney has announced its plans to build a Star Wars themed-deluxe resort. This resort is expected to provide direct access to highly anticipated Star Wars land known as Galaxy Edge at Disney’s Hollywood Studios. The number of rooms and construction timeline for this resort is not available at this time, but Fitch says it believes this resort will compete directly with the Swan and Dolphin thanks to its location.
