Motel 6 Leaves the Light On for $1.8B CMBS

NEW YORK CITY—In one of the largest securitizations backed by lodging properties since the CMBS market cratered amid the 2008 financial crisis, Blackstone Real Estate Partners VII is preparing to issue $1.8 billion of commercial mortgage pass-through certificates on a first-mortgage loan for some 500 Motel 6 properties. The improvement in the portfolio's performance since 2012, when it secured a $1.05-billion pass-through issue, roughly parallels the progress the hotel sector has made in that time.

The presale report from Fitch Ratings for Motel 6 Trust 2015-MTL6 notes that RevPAR as of December 2014 was $33.76, an increase of 9.8% over 2013 and 4.9% above previous peak levels achieved in 2007. At $33.76, it's also 4.4% higher than the economy chain scale as reported by Smith Travel Research, Kroll Bond Rating Agency says in its presale on 2015-MTL6. By comparison, the lodging sector as a whole saw an average RevPAR increase of 8.3% last year, according to the Standard & Poor's report on the Motel 6 securitization.

The economy segment didn't falter as badly as the hotel sector overall during the post-2008 downturn, yet S&P points out that it has also recovered more slowly since 2009. “As a result, the segment's 2014 US RevPAR was about 5.6% above the peak RevPAR level exhibited in '07, compared with 13.2% for the lodging sector overall,” according to S&P's report. On the plus side, the economy segment's annual supply growth has been “minimal” and actually shrank in '12 and '13.

That low rate of supply growth generally helps offset what S&P sees as the lodging sector's liabilities. Among these are the daily nature of the pricing structure, lodging properties' significant operating component and their higher expense ratio relative to other property types. “In addition, relative to full-service properties, limited-service hotels have a shorter development timeframe, are cheaper to construct and are easier to finance, potentially resulting in fewer supply constraints,” according to S&P.

Fitch expressed concerns about the impact of “recent volatility of oil and gas pricing” on economic performance in markets with a high exposure to the energy sector. About 64 properties in the 507-asset portfolio—which includes 468 Motel 6 hotels, 38 Studio 6 properties and one Red Roof Inn—are located in Texas, representing 13.1% of the portfolio and 11.7% of the loan balance.

KBRA notes that although the portfolio is geographically diverse, representing 47 states and one Canadian province, 57.8% of the loan balance is concentrated in three states. They include California (41.3% of the balance and 138 properties) and Florida (4.8% of the balance and 23 properties) as well as Texas. There's also considerable exposure to secondary and tertiary markets.

In favor for both the portfolio and the securitization, the three ratings agencies cite the Blackstone Group's extensive experience in the lodging sector. It acquired the Motel 6 brand from Accor S.A. in October 2012, and also owns the Extended Stay America and La Quinta chains, and previously owned the Hilton Hotel chain. There's also a healthy debt service coverage ratio of 2.99x in the portfolio's favor.

Jeff Watzke, senior director with Fitch, tells GlobeSt.com that 2015-MTL6 is one of the biggest hotel/lodging transactions that Fitch expects to rate over the past few years. The only larger lodging-related deal that Fitch rated over the past few years was the $2.52-billion Extended Stay America Trust, 2013-ESH.