BETHESDA, MD—The race to lock down the historically low interest rates continues unabated. In recent weeks two locally-based REITs refinanced secured loans with the end result of securing dramatically lowered borrowing costs.
RLJ Lodging Trust is the most recent example; this week the REIT announced it refinanced a $143 million secured loan with Wells Fargo Bank. Last week it was DiamondRock Hospitality Co., which amended its $170.4 million mortgage loan secured by The Lexington Hotel in the New York City.
In RLJ's case the financing transaction was a little more complicated: the REIT originated four separate first mortgage loans totaling $143 million, the proceeds of which retired five mortgage loans.
The base term for the loans is three years with four one-year extension options. Including extensions, this tranche of debt will mature in 2021. The mortgages are interest only for the first five years and bear a floating rate of LIBOR plus 225 basis points. Essentially the new deal reduced this tranche of debt's interest rate by 135 basis points, excluding the impact of a potential hedge.
DiamondRock's new loan has an interest rate based on an initial floating rate of LIBOR plus 275 basis points. However it has a pricing grid that could lower the spread to as much as 175 basis points. The amended loan extends potential term of the loan by 30 months to October 2019. The five-year term includes two one-year extension options.
The company is saving around $1.5 million to $2 million in annual interest costs with its new loan.
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