12/03/2010

Three Foreign Banks to Share Big Hotel Loan

Aareal Bank and two other foreign lenders have agreed to originate a $240 million floating-rate mortgage on a Hilton hotel next to San Diego's convention center.

Aareal won the assignment and brought in two other lenders, including another German bank, NordLB. The third lender is also a foreign bank, but its identity was unclear. Each lender will fund an equal portion of the five-year mortgage on the 1,190-room Hilton San Diego Bayfront. Hilton Worldwide owns the property in partnership with a Middle East sovereign wealth fund.

The loan-to-value ratio is about 65%, indicating the hotel is worth almost $370 million. The Hilton partnership will use the proceeds to pay off the remaining balance of a $245 million construction loan on the luxury property, which opened in 2008.

The assignment was shopped to life companies, banks and conduit shops. Lenders in recent months have shown renewed interest in hotel loans as the industry's fundamentals have improved.

The size of the loan may have led some individual banks to back away. But it was well-suited for a club deal, in which two or more lenders team up to take down a loan, usually in equal amounts. Eastdil Secured is advising the Hilton partnership.

The waterfront hotel, categorized as "upper-upscale," had an average occupancy rate of 73% for the year ending Sept. 30. The average room rate for that period was $190, and daily revenue per room was roughly $140. By comparison, all upper-upscale hotels in downtown San Diego had a 75.7% average occupancy rate, an average room rate of $169, and $128 of revenue per room in the first 10 months of this year, according to Smith Travel Research.

The Hilton's performance is buoyed by its location next to the 1.8 million-square-foot San Diego Convention Center. The hotel is also within walking distance of Petco Park, home of the San Diego Padres.

The Hilton partnership spent nearly $350 million building the 30-story hotel, which has 165,000 sf of meeting, office and ballroom space. The construction loan was originated by San Diego National Bank. When that bank failed late last year, U.S. Bank of Minneapolis assumed the loan.

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