SRH Inks Long-Term Ground Lease for Westin

SOUTHLAKE, TX—SRH Hospitality signed a long-term ground lease with a Florida-based hedge fund for the development of a 261-room Westin. The project is located at the intersection of Highway 114 and Carroll Avenue, across from Southlake Town Square, and less than five miles northwest of Dallas/Fort Worth International Airport.

CBRE’s Nate Sahn, Robert Brennan and Pravin Boteju represented SRH Hospitality in the ground-sale leaseback/GSLB transaction. Brennan says many commercial real estate principals of hotels, office, retail, multifamily and industrial are realizing the benefits of this unique structure, which results in the output of significantly less equity combined with significantly higher cash-on-cash returns and lower overall risk than the traditional investment model.

“Most owners will summarily dismiss the concept of not owning the land below their buildings,” Brennan tells GlobeSt.com. “But when they take the time to examine the merits of a GSLB, aka bifurcation, they will soon see GSLBs are a win-win for both the buyer and seller. The buyer gets a long-term, safe, predetermined bond-type monthly income stream and the seller retains ownership of the improvement and gets long-term control of the dirt via a 99-year lease, while simultaneously reducing their equity contribution and significantly spiking their cash-on-cash yields. That’s really it. That’s why you are seeing a big increase in GSLB volume whether it’s on an acquisition, disposition, refinancing or development.”

This transaction is one of many ground-sale leasebacks completed by CBRE during the last 48 months. The ground-sale leaseback structure is applicable across all four transaction types: acquisitions, dispositions, refinancing and development, and offers several benefits to hoteliers seeking to restructure capital stacks and improve cash-on-cash yield.

“Initially, when CBRE approached us on the ground lease structure for our Westin hotel development project, we were hesitant but willing to listen. After better understanding the enhanced benefits to our capital stack as a result of lower equity needs, enhanced returns to our investor group and significantly better loan coverage, we engaged CBRE in structuring a long-term ground lease for our hotel project. Their team executed flawlessly, and we were extremely pleased with the outcome and results from their ground lease assignment,” said Jerry Crenshaw, co-founder and principal at SRH Hospitality.

The six-story hotel will sit on 6.8 acres and feature a 25,000-square-foot conference center with a ballroom, full-service restaurant/bar and a rooftop lounge area.

“Ground sale leasebacks, otherwise known as bifurcations, continue to gain traction in the marketplace as a very attractive capital stack structure. As their momentum continues to grow, we will see more acquirers, sellers, developers and owners seeking these financings, refinancings and recapitalizations,” said Sahn.

The Southlake city council adopted a resolution that pushed back the opening date for the Westin hotel at the council’s August 6 meeting, according to Community Impact. The Westin was due to obtain its certificate of occupancy no later than June 30, 2021, according to meeting documents. But the new resolution would push that date to December 30, 2021, per a request by the applicant, SRH Hospitality Southlake Investments LLC.

An incentive agreement for the Westin’s development was approved first in 2015. Provisions that included deadlines and expectations were later added. The agreement also specifies a public investment of $5.4 million from the city, according to meeting documents. It would be paid back during a period of up to 12 years from property tax, hotel occupancy tax and sales taxes generated by the hotel, says Community Impact.