$212,250,000 Non-Recourse Senior Construction Financing for the Ground-Up Development of a Montage and Pendry Resort & Residences, La Quinta, CA

Transaction Description:

George Smith Partners successfully arranged $42,200,000 in financing to recapitalize the construction of a 133-key extended-stay hotel on Music Row in Nashville, TN. The Lender disbursed 71% LTC, accompanied by a 12-Month interest reserve.

Multiple challenges were encountered when discussing the transaction with capital providers. The first being that the hotel is unflagged- many hospitality lenders focus primarily on popular hotelier affiliations during this risk-constrained lending environment. The team encountered a second hurdle related to mid-construction refinancing, which presented a challenging proposition from the outset of our campaign due to the hotel’s planned grand opening before November of 2023.

The GSP team was determined to leverage the deal with support from the local Nashville sponsor that owns and manages over 600 keys in the Nashville market and over 2,000 keys in the southeast, property location on Music Row in Nashville, and construction completion.

GSP successfully identified a hospitality Lender that exhibited confidence in the construction recapitalization process. This Lender was equipped to furnish the necessary funds to facilitate a smooth transition into TCO. Additionally, displaying confidence in the projected Average Daily Rate (ADR) assumptions. Notably, the Lender displayed comfort in financing the unflagged and extended-stay hotel, due to the Sponsor’s reputable track record in the market.

Transaction Description:

George Smith Partners arranged a $47,000,000 fixed-rate, non-recourse, construction loan for the development of a four-star boutique hotel in a coastal community of California. When completed, the property will include 102 rooms and a fine dining restaurant.

Challenges:
The project experienced significant public resistance and ultimately, entitlements took 20 years to obtain. GSP was originally engaged to arrange institutional equity and fixed-rate construction to perm debt in the spring of 2022. GSP was successful in doing so, however, market volatility caused the deal to stall and ultimately the developer elected to dispose of the project to another developer. The new developer engaged with GSP to obtain new financing terms.

Solutions:
GSP focused on the strength of the sponsorship team, high barriers to entry, supportive hotel flag, positive historical occupancy, ADR-both before and after Covid, popularity of the local demand drivers, as well as the lack of competing quality hospitality properties in the immediate vicinity. Ultimately, GSP arranged a solution that met the needs of the sponsor.

Transaction Description:

George Smith Partners successfully placed a $16,900,000 cash-out CMBS loan to fund the refinancing of a limited-service hotel located in Central California. Backed by strong travel demand, the hotel was performing better than ever with additional revenue growth expected in future months. The Property was encumbered by a bridge loan nearing the end of its term and the Sponsor was looking to maximize proceeds to secure a cash-out refinance.

CMBS lender appetite toward hotels has picked up since the pandemic and the hotel received multiple bids from lenders. The 10-year fixed rate loan represents a 65% loan to the appraised value. Most CMBS lenders underwrote the loan to a 12% debt yield but due to the successful advising process of George Smith Partners, the chosen Lender was able to close using a 10.75% debt yield on T-12 income. Having experienced a dip in revenue through the COVID-19 pandemic, underwriting this asset required additional diligence to truly understand the stabilized cash flow. The hotel was experiencing a ramp-up in demand as drive-to markets have been extremely well-traveled since the pandemic. GSP and the Sponsor timed the refinance so that the hotel generated strong cash flow and secured an attractive rate during a rising rate environment.

Transaction Description:

George Smith Partners successfully arranged a $9,907,500 loan for a very special project in San Francisco that provides huge benefits to the City and the Community. Utilizing our relationship with a community development lender, GSP was able to secure a 3.5% interest rate, 10 year loan, for a drug-free rehab facility in the South of Market (SoMa) area of San Francisco. The Facility aims to transform the lives of the surrounding community with help from the City. The Project was a vacant hotel with shared bathrooms, bordering some of the roughest areas of San Francisco. Most lenders passed on the project, but because of GSP’s experience with SRO properties, we were able to negotiate a below market rate for 10 years to enable the Project to move forward.

The loan allowed for the rehab and redevelopment of an old SRO (Single Room Occupancy) tourist hotel with shared baths into the updated 80 room facility, which included new private bathrooms in each unit. It is great to not only successfully close a difficult loan, but to see the way the Sponsor was able to transform lives and solve community challenges.

The Project will house people who are struggling with substance use from the streets to a safe place indoors. They can access clean bathrooms, showers, food, and a place to rest. Afterwards, the staff can help participants connect with medical care, mental health, substance use, and housing services. The Center was designed to improve safety for both participants and neighbors by creating a safe place for people experiencing a drug related crisis.

Transaction Description:

George Smith Partners secured permanent financing for an unflagged, 90-key, boutique art hotel in Tucson, AZ. The Sponsor acquired the Property in 2017, and completed a full renovation and rebrand in 2018, primarily with cash. The Hotel performed extremely well prior to the pandemic. While revenue and NOI declined, along with most hospitality assets during that time, the Property has since recovered to and exceeded pre-pandemic levels. Despite the Property being unflagged and located outside downtown Tucson, GSP was able to leverage its strong lender relationships to source CMBS and Life Insurance Company quotes. The Sponsor ultimately chose a LifeCo lender who offered a combination of low rate, longer amortization, prepayment flexibility, and potential to increase proceeds during the loan term.

Transaction Description:

George Smith Partners successfully arranged $30,139,000 in construction financing for the phased adaptive reuse of a landmark office tower into a 145-key upper-upscale lifestyle hotel with boutique-quality amenities. Located within a Qualified Opportunity Zone in the heart of Downtown Tucson, the Project is a focal point in the downtown skyline, offering unparalleled accessibility to numerous restaurants, bars, shops, and entertainment venues.

The financing capitalized renovation costs related to the redevelopment of the office tower; the Project also qualified for valuable tax benefits intended to spur new development in the surrounding area.
The Downtown Tucson market currently has only one upscale lifestyle hotel, while market growth has created a strong demand for upscale product within the hotel sector. Bolstered by local knowledge and industry expertise, the top-tier Sponsorship team recognized the gap within the market and identified the asset as a unique opportunity to create a transformative hotel in the city’s employment and social epicenter. GSP was able to identify an institutional-quality lender who not only understood the substantial value of the Project’s tax benefits in a high-growth market, but also the Sponsor’s ability to execute on the business plan.