Mid Atlantic Real Estate Journal — Spring Preview — April 26 - May 9, 2013 — 7C F inAncing
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By Brendan H. Scanlon, NorthMarq Capital The return of non-recourse, full-leverage hotel loans
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protection in the form of yield maintenance can last between 18 to 24 months. In the case of a discounted loan payoff, the new lender may require fresh cash from the sponsor as a recommitment to the property; the amount of this cash infu- sion is negotiable, but gener- ally ranges between 10% and 20% of the loan amount. The combination of a senior mortgage and subordinate debt is normally capped at a maximum 90% loan-to-value or a minimum 8% debt yield. The subordinate debt is coter- minous with the senior loan,
which commonly runs up to five years. Governed by a max- imum 75% loan-to-value or a minimum 9% debt yield, the conventional senior piece will be priced at approximately 4% on an amortizing basis, while the subordinate piece will be priced between 10% and 12% on an interest-only basis. As mentioned above, in the case of a discounted loan payoff, the subordinate debt investor may seek a monetary recommit- ment from the sponsor. The intersection of low- interest rates and improved hotel performance is allowing
investors in overleveraged, leading hotels to refinance into non-recourse, full-lever- age loans—an inconceivable expectation two years ago. With the economy stable, but still susceptible to shocks of a domestic or international nature, those investors would be wise to strike. NorthMarq, headquartered in Minneapolis, offers com- mercial real estate services for investors, developers, corpora- tions and tenants. The compa- ny provides mortgage banking and commercial loan servicing in 33 offices coast-to-coast,
with an average of $7 billion in annual production volume and services a loan portfolio of nearly $40 billion. NorthMarq manages more than 60 million s/f of retail, industrial and of- fice space in 22markets around the country and handles more than 7,500 leasing, sales and mortgage banking transactions annually. Brendan Scanlon joined NorthMarq Capital in May 2007. He currently serves as vice president of the DC regional office and is responsible for arranging debt and equity capital. n
otel loans are intrin- sically risky. Retail and office loans are
protected by mu l t i - y e a r leases, mul- tifamily by y e a r - l o n g leases, and self-storage b y mo n t h - long leases; whereas, ho-
Brendan Scanlon
tels have day-long leases. This can leave investors—both lend- ers and owners—precariously positioned if the economy cools or, worse, collapses, as in the aftermath of the Bear Stearns and Lehman implosions. A cursory review of operating statements for 2009 and 2010 confirms most hotels suffered in the wake of the economic meltdown. In comparison, shielded by multi-year leases, office and retail investors were generally unscathed. The good news is hotel per- formance has rebounded from the nadir of 2009 and 2010. Revenue has increased and expenses have been controlled, resulting in a tidy growth in operating income. Coupled with record-low interest rates, this improvement in operating income has been a boon for hotel investors, many of whom would not have been able to refinance two years ago. Additional good news is the return of non-recourse, full- leverage loans for investors in Hilton, Intercontinental, Marriott and Starwood Hotels, as well as investors in upscale boutique hotels in primary markets. With an increase in operating performance and interest rates for conventional five-year senior mortgages nearing 4 percent, investors in overleveraged hotels now have the prospect of a “stretch” senior mortgage or the combi- nation of a senior mortgage and subordinate debt. Generally a stretch senior mortgage caps at a maxi- mum 80% loan-to-value or a minimum 8% debt yield. Debt yield for hotels are usu- ally defined as net operating income, minus a 4% reserve for furniture, fixtures, and equipment, divided by the loan amount. The term is usually three years, with two, one-year extension options, exercisable for a fee. Floating rates start at approximately 6% on an interest-only basis, and lender fees amount to 2 percent. Call
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R E C E N T N O R T H M A R Q T R A N S A C T I O N S
$30,355,000 Bradlick Shopping Center SIZE: 144,727 SF CITY: ANNANDALE, VA LENDER: LIFE COMPANY
$15,680,000 Eastview Apartments SIZE: 79 UNITS CITY: HOBOKEN, NJ LENDER: REGIONAL BANK
$4,500,000 Red Branch Road SIZE: 90,000 SF CITY: COLUMBIA, MD LENDER: LIFE COMPANY
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