ValueXpress recently closed an $8.2-million CMBS conduit loan for the purchase of the Hilton Garden Inn located in Killeen, Texas. The property was constructed in 2007 and is in good condition. However, the Property Condition Assessment noted evidence of mold on the stucco façade of the hotel and on interior walls adjacent to the hotel exterior. Originally, this was not a great concern because exterior and interior work was to be completed with the change of ownership Property Improvement Plan (PIP) in conjunction with a new 15-year franchise license with Hilton; any mold would be taken care of within the PIP work.
A separate mold survey was completed. It noted water was getting behind the façade and the condensate from room HVAC units was not draining properly. In addition, roof leaks were found and caulk failure was evident around windows. Mold growth can occur whenever moisture is unable to evaporate naturally, as was the case here. However, the scope of remediation costs began to expand rapidly: Suggestions were made to remove and replace the façade, replace all the HVAC units, strip interior walls to the studs and re-sheetrock.
ValueXpress hired an environmental specialist to recommend a reasonable scope of work to remedy the issue and get the loan closed. In addition, a Moisture/Mold Action and Prevention Plan (MMP) was put in place for the property. ValueXpress will work with the buyer on securing escrow releases from the servicer as remediation work is completed.
But the moral of the story? None of this should have happened. In accordance with the MMP, all the evidence of mold should have been remediated prior to inspection using a detergent solution to clean interior surfaces and for power washing the exterior façade on a regular basis to ensure the property is mold-free.