Four hotel loans that were closed pre-COVID-19 have been included in the most recent CMBS offering led by Wells Fargo and UBS. The $560.5-million offering included 40 loans secured by 71 properties. The hotel loans included in the pool are the first since the pandemic significantly impacted hotel performance in March.
Three of the hotel loans are secured by extended stay properties and one loan is secured by a select service hotel. The 3rdlargest loan in the pool is a $35-million loan secured by the 142-room Hilton Garden Inn located in Goleta, California, approximately 12 miles west of Santa Barbara. Due to COVID-19, the hotel reported 8.8% occupancy in April, 17.4% in May and 35.1% in June. As a result, net cash flow declined to $2.81 million for the trailing 12 months ended June 30 compared with $4.28 million in 2019. To adjust for a normalized year, a “COVID-adjusted” underwriting was presented to investors that substituted 2019 performances for March, April, May and June 2020, which were negatively impacted by COVID-19. In addition, the loan was structured with a 12-month debt service reserve.
The 6th-largest loan in the pool is a $27.7-million loan secured by the Residence Inn – Fort Worth Cultural District. The property is a 4-story, 149-room, extended stay hotel located in Fort Worth, Texas, approximately 1.8 miles west of the central business district. The hotel reported 19.1% occupancy in April, 37.2% in May and 48.7% in June. As a result, net cash flow declined to $2.62 million for the trailing 12 months ended June 30 compared with $3.63 million in 2019. To adjust for a normalized year, a “COVID-adjusted” underwriting was presented to investors that substituted 2019 performances for March, April, May and June 2020, which were negatively impacted by COVID-19.
“The inclusion of hotels in this CMBS offering is great news as the CMBS market continues to return to normalcy. With the worst of the COVID-19 period behind the hotel industry, I expect to see more hotels included in future CMBS offerings,” commented Michael Sneden, Executive Vice President at ValueXpress.