WASHINGTON, DC—Earlier this month Trepp reported that the Renaissance Mayflower, an upscale 657-key hotel located on 1127 Connecticut Ave. NW, refinanced its $184 million loan with Citibank, Apollo Commercial Real Estate Finance and other investors. The new financing consists of a $160 million split between a $115 million A note and a $45 million mezz, Trepp said.
This is what this particular loan's journey does show: the local hotel market has had a somewhat rocky ride and in general, debt service coverage ratios based on pro-forma numbers are usually not a good idea.
Here's what it doesn't show: That lenders have regained confidence in the market now that it is picking up.
The loan was first transferred to special servicing in 2009 and was later modified, according to Trepp. The maturity date was pushed out two years from March 2012 under that modification. Then, a second modification pushed the maturity date out to September 2016 and the borrower had an option for another 12 months beyond that. In 2014 it exited special servicing but it is still currently on the watchlist.
In short, the latest refi is more of an injection of funding rather than a way for the sponsor to lock in interest rates or take out proceeds for further investment, Trepp Research Analyst Sean Barrie tells GlobeSt.com. "The lenders have agreed to back the hotel for two more years," Barrie says. "It remains on the watchlist because the financials are still testing the water a bit."
"I think the lenders are more hopeful than sure that the local hotel industry is now strong enough to support this hotel," he says. The refi is "basically a case of them saying 'let's just get this done so the loan can be paid off.'
The loan backing the Renaissance Mayflower was securitized in 2007. At the time the debt service coverage ratio 0.95x, but the appraised value of $285 million was based on a higher pro-forma DSCR of 1.48x, according to Trepp.
"The property struggled to generate enough cash to pay debt service on the loan from the start," Trepp said in its report. "The DSCR was 0.66x in 2008 and 0.77x in 2009--a slight nudge up. The DSCR moved up somewhat in recent years to 0.88x in 2014."
A request for comment from hotel sponsor Rockwood Capital was not returned to GlobeSt.com.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
