A US$282.1m CMBS helped refinance a mortgage on a luxury Hawaii resort last week, one of the few high-end, single-property hotel deals priced since the start of the pandemic.
HONO 2021-LULU Mortgage Trust, priced by Deutsche Bank and Goldman Sachs on Friday, was a rare transaction given luxury resort properties have been largely locked out the securitization market for the last 18 months. During this period, Covid restrictions slashed high-end room bookings along with leisure and business travel.
"It's encouraging to see a leisure-style property finally getting financed," a senior portfolio manager said.
The deal funded a US$450m mortgage the two banks originated for a 1,230-room Honolulu resort – Hyatt Regency Waikiki Beach Resort and Spa – which Korean asset manager Mirae Asset Global Investments bought from Blackstone in 2016 for US$756m. Hyatt Corporation manages the property.
Prior to this resort deal, budget and extended stay properties were the primary types of hotels that attracted CMBS funding in the Covid era because their revenues have rebounded faster than those of high-end luxury resorts. Budget and extended stay properties have benefited from the return and the increase of consumer travel this year, market participants said.
"Leisure demand is driving an unprecedented recovery for hotels," Deutsche Bank analysts wrote in a report earlier this month. Average revenue per available room (RevPar) was US$82 in August and is expected to recover to pre-Covid levels over US$100 in about two years.
Investor enthusiasm for lower-priced hotels led to the success in June of a US$4.65bn single-asset, single-borrower deal (SASB), Extended Stay America Trust 2021-ESH, which financed Blackstone and Starwood's US$6.2bn acquisition of hotel operator Extended Stay America. The SASB was the second largest standalone CMBS ever, according to JP Morgan.
There are signs of a pickup in high-end lodging demand, but it has been felt largely in areas such as Florida, which has beaches and theme parks where people could drive to and not require flying.
"[We] think leisure travel will remain robust and that the performance of resort hotels located in 'vacation destination' markets, such as those in Florida, should continue to improve," Bank of America analysts wrote in a research note on Friday.
Destination travel
In contrast to the hotels in Florida, the Hyatt Regency Waikiki resort and other luxury Hawaii properties are still struggling due to the state's Covid restrictions on visitors. The Hyatt Regency's RevPar for the last 12 months was U$46.56 in July, down from $248.31 for the fiscal 2019. Its average occupancy rate as 22.1%, down sharply from 90.7% in fiscal 2019, DBRS Morningstar said in a pre-sale report. DBRS was the only company hired to assign credit ratings on the deal.
Waikiki resort's weakened business led bankers to layer relatively low leverage in the transaction at 58.4%. The transaction was marketed to and placed with a small group of investors who were able to buy CMBS without ratings from the three major agencies, another senior fund manger said.
The $100.353m Triple A rated tranche with an initial weight-average life of two years was priced at one-month Libor plus 115bp. This was wider than the 108bp on the Triple A rated A notes in the more levered Extended Stay deal.