HOUSTON-Stout Street Hospitality has obtained a $42 million first mortgage loan to refinance the Magnolia Hotel here. UBS Securities LLC originated 10-year, non-recourse conduit loan, which took out a first mortgage and a second mortgage and provided extra proceeds.  

Jones Lang LaSalle Hotels arranged the fixed-rate financing for the 314-room historic hotel. The firm’s Executive Vice President Mathew Comfort and Associate Mike Huth led the team.

Comfort tells GlobeSt.com that the Magnolia Hotel generated interest from both portfolio and CMBS lenders when brought to market about three months ago. “We initially thought a portfolio lender would be the best option because we weren’t sure how the CMBS guys would react to the fact that this hotel doesn’t have a major flag and its location in the Houston market, which has some new supply and hasn’t been as strong as other markets,” he explains. “The lack of flag narrowed the pool of lenders because there are certain lenders that will only lend on branded hotels.”

Despite those potential drawbacks, Stout Street had plenty of options to refinance its Houston property. “The hotel got a lot of interest from CMBS lenders,” Comfort says. “We received 10 viable bids, and as a result, we were really able to push terms.”

While Comfort declined to discuss loan specifics, an industry expert estimated that Stout Street was able to lock in an interest rate in the mid-5% range for the Magnolia Hotel. That same expert noted that the LTV was likely below 70%.

Comfort says lenders were attracted to the Magnolia Hotel’s strong performance during the most recent recession, as well as its current cash flow. He also notes that the size of the loan was just right – large enough to allow a lender to deploy a “good amount” capital, but not so large that it would be an issue when it was time to securitize the loan.

Located at 1100 Texas Ave. in downtown, the boutique hotel opened in March 2003 following a meticulous rehabilitation and adaptive re-use of the historic Post Dispatch building. The property features more than 10,000 square feet of meeting space, an 86-seat restaurant, a rooftop health club, swimming pool and sun terrace.

Stout Street financed the rehab and adaptive reuse with a $9 million loan from the city of Houston on top of a primary loan from North Houston Bank. The new CMBS loan replaces both loans, Comfort says.