07/30/2010

Hypo Offers Mezz Debt on 5 Luxury Resorts

(SEE CORRECTION BELOW) Hypo Real Estate is seeking a buyer for a $110 million mezzanine loan on five well-known luxury resorts owned by CNL Hotels.

Broker Eastdil Secured is slated to take bids on the loan next week, and based on early discussions with investors the credit is expected to sell for roughly 70 cents on the dollar. The interest-only debt, pegged to 175 bp over one-month Libor, is secured by the following properties:

*The 780-room Grand Wailea Resort Hotel & Spa on Hawaii's island of Maui.

*The 796-room La Quinta Resort & Club in La Quinta, Calif.

*The 734-room Arizona Biltmore Resort & Spa in Phoenix.

*The 693-room Doral Golf Resort & Spa in Miami.

*The 279-room Claremont Resort & Spa in Berkeley, Calif.

Like all luxury resorts, the five properties have suffered during the economic downturn. Occupancy fell to 61% last year, from 66% in 2008. The resorts generated $68.7 million of net operating income in 2009, down sharply from $123.9 million the previous year. The revenue drop-off caused the portfolio's debt-service-coverage ratio to fall to 1.2 to 1.

The properties are helped, though, by ancillary revenue streams. Four of the five hotels have at least 60,000 square feet of meeting space. Four of the five properties also feature well-regarded golf courses. In the twelve months that ended May 31, the portfolio threw off more than $250 million of non-room revenue, according to marketing materials shown to investors.

The debt is part of a $1.5 billion financing package that Orlando-based CNL lined up from Deutsche Bank in 2005 to refinance the five-hotel portfolio. Deutsche securitized the $1 billion senior mortgage, which carries a 5.6% coupon, in a single-borrower deal (COMM, 2006-CNL2). It then placed $525 million of floating-rate mezzanine debt with investors. Hypo's position is subordinate to a $115 million tranche and senior to two tranches totaling $300 million.

The debt package allowed for an additional $100 million of mezzanine debt, although it appears that piece was never funded.

CORRECTION (8/6/10): This article incorrectly identified CNL Hotels as the owner of five hotels that collateralize a $110 million mezzanine loan being shopped by Hypo Real Estate. Funds operated by Morgan Stanley acquired the properties in 2007.

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