Affordable Hotels in Fort Lauderdale|"Hotel Debt Fills Bonds"

Source             :   bloomberg.com
Category        :   Affordable Hotels in Fort Lauderdale
By                  :   Sarah Mulholland
Posted By     :    Hotels In Fort Lauderdale

Affordable Hotels In Fort Lauderdale

The Fontainebleau Miami Beach is booked solid next week as bankers prepare to crowd the iconic lobby for cocktails at an annual bond-market convention. For owner Jeffrey Soffer, the conference helps justify a $1 billion makeover that almost cost him the property three years ago. Soffer is seeking a roughly $850 million mortgage on the 1,504-room resort from some of the same bankers gathering at the ABS East conference, according to people briefed on the details of the financing who asked not to be identified because the talks are private. The loan, intended to refinance debt and buy out Dubai World’s 50 percent stake in the hotel, will be packaged into commercial mortgage-backed securities as investors snap up the deals at the fastest pace in five years, according to the people.Soffer, the head of real-estate investor Turnberry Associates, is likely to find a receptive audience after prices for hotels in top-tier locations climbed 17.6 percent this year to within 11 percent of the 2008 peak. Bond sales linked to hospitality loans have already more than tripled since January to $7.7 billion, compared with $9.4 billion in 2007 before markets collapsed, enabling borrowers to extract cash from their businesses, according to Wells Fargo & Co. data. 

“When things get bad in hotels they get really bad,” said Dan Fasulo, a managing director at Real Capital Analytics Inc., a New York-based property research firm. “A lot of lenders got burnt badly in the downturn. There is no question that CMBS lenders have been the most aggressive” since values started recovering, he said.Hotels, which are the first commercial property type to see revenue decline in a recession, can rebound the fastest as rates can be adjusted on a daily basis to meet renewed demand. The delinquency rate for the properties has dropped to 8.04 percent as of August, from 11.46 percent the prior year and a peak of 21.31 percent in September 2010, according to Fitch Ratings. The Fontainebleau, a haunt for Frank Sinatra and Marilyn Monroe that also served as a backdrop for the “Scarface” and “Goldfinger” movies, was a victim of the real-estate crash and recession. Soffer acquired the property on Collins Avenue in South Beach in 2005 and then spent $1 billion using borrowed money to renovate the resort. The owners stopped making payments on $620 million of debt in September 2010 as businesses and households ratcheted back on travel amid the recession. Hotel revenue in Miami plunged as much as 28 percent during the depths of the crisis in 2009 according to STR, a Hendersonville, Tennessee-based data provider.Soffer, who married Australian model Elle MacPherson this year, hung on to the hotel by negotiating with lenders to extend maturities. Along with a unit of Dubai World, they agreed to invest an additional $100 million in cash, people familiar with the plan said at the time.

He’s now seeking to tap rising demand for hotel debt and increased valuations to buy out the Middle Eastern investor. Average revenue-per-room at the end of September 2012 rose 35 percent since 2010, according to Fitch Ratings. The new loan will pay off debt sold in a CMBS deal last year comprised of a $412 million mortgage arranged by UBS AG. Joseph Gerbino, a spokesman for the Fontainebleau, declined to comment on the financing. Soffer and representatives from Dubai World didn’t return calls seeking comment.The negotiations are taking place as attendees plan to assemble from Oct. 6 to Oct. 8 for Information Management Network’s ABS conference for securitization where 3,500 people are registered, up 25 percent from 2012, according to IMN. Attendance has climbed from 1,200 in 2009. The Fontainebleau, has hosted the conference since 2011, serving as a backdrop for bankers to woo clients at parties and steak dinners. The event is regaining its footing as CMBS sales are poised to double to $70 billion this year, according to Credit Suisse Group AG. The share of hotel loans within those deals also is rising as investors become more comfortable with the lodging sector as the U.S. recovery progresses, said Lad Duncan, an analyst at Wells Fargo.

“Lenders were full up on hotel loans,” during the recession, he said in a telephone interview. “With the market improving, they are much more palatable.” Mortgages on hotels account for 15 percent of standard CMBS deals sold this year, which contain as many as 100 loans tied to everything from office parks to shopping malls, according to Wells Fargo. That’s up from 2.8 percent in 2010.The lodging sector has become increasingly reliant on Wall Street with CMBS the primary source of debt financing, Real Capital said in an April report. CMBS lenders are particularly dominant in smaller cities and towns, accounting for 50 percent of hotel loans in so-called tertiary markets in 2012, the latest data available, according to Real Capital. That’s in part because insurers and regional banks retreated from hotel lending after taking losses during the downturn, said Real Capital’s Fasulo. About $6.7 billion of bonds linked to large hospitality loans to be sold off individually are set to be issued through the end of the year, according to Bank of America Corp. data. That includes a $3.5 billion transaction tied to Blackstone Group LP (BX)’s initial public offering of Hilton Worldwide Holdings Inc., the biggest hotel chain in the world. Still, growth in revenue-per-available-room, or revpar, is starting to slow, according to researcher STR. It rose 5.6 percent in the first half of 2013, compared with 6.8 percent growth for all of last year and 8.2 percent in 2011.

Source:bloomberg.com/news/2013-10-01/miami-beach-banker-party-shows-why-hotel-debt-fills-bonds.html