09/17/2010

$400 Million of Sour Hotel Loans on Block

LNR Partners and two other special servicers are jointly shopping more than $400 million of nonperforming hotel mortgages - the largest offering of distressed loans on a single property type since the market collapse.

LNR is supplying most of the roughly 60 securitized loans, with C-III Asset Management and J.E. Roberts Cos. kicking in the others.

A two-day online auction will start Nov. 1, run by a partnership between Jones Lang LaSalle and REDC. Bidders can make offers on individual loans. Unlike with sealed-bid auctions, offers will be posted live and seen by all participants, although the bidders' identities remain anonymous. Investors can then increase their bids, akin to public-outcry auctions.

The offering is by no means the largest in recent months. For example, LNR this summer sold $950 million of soured commercial MBS loans to multiple buyers for an average of 45 cents on the dollar. But other large offerings have included loans on a mix of property types. This is the largest sale of loans to multiple borrowers on one property type.

The portfolio is likely to draw interest from both debt managers interested in restructuring the loans and so-called "loan-to-own" investors eager to gain control of the underlying properties. Improving fundamentals in the hotel sector will likely spur interest.

The hotels range from full- to select-service properties. They are spread across 23 states, with concentrations in Florida, California and Georgia. Investors have yet to see final due-diligence materials, however, so the portfolio's characteristics may change slightly.

Among the largest loans is a $34 million mortgage on a full-service Courtyard by Marriot hotel in Lyndhurst, N.J. The 227-room hotel was built in 1990 and renovated in 2002. The average occupancy was listed at 66% in the most recent servicer report. The 10-year loan, originated by Citigroup, is scheduled to mature in September 2017. The unidentified sponsor began struggling with payments late last year, and the loan turned delinquent in January.

The offering is the largest currently on the market from a special servicer. As previously reported, CWCapital is marketing $305.8 million of defaulted CMBS loans, divided into two offerings: a $207 million portfolio being handled by Mission Capital and a $98.8 million package via CB Richard Ellis. In both auctions, investors can bid on any combination of loans. CWCapital took bids this week on the smaller portfolio. Investors have until Monday to bid on the larger one.

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