$50,000,000 Non-Recourse Construction Loan to Develop Los Angeles International Airport Dual Branded Hyatt Hotel

Rate: 1 Month LIBOR + 4.25%
Term: 3 + 1 + 1
Amortization: Interest Only
LTC: 50%
Guarantee: Non-Recourse

Transaction Description:
George Smith Partners arranged $50,000,000 in non-recourse senior construction financing for the adaptive reuse of a 1960s vintage office tower one block from LAX in Los Angeles into a dual-branded Hyatt Hotel. The Sponsor’s business plan is to convert the existing 13 story 250,000 square foot office building into a 401 key Hyatt House and Hyatt Place hotel that features a trendy Mid-Century inspired urban design. The completed project, which will feature both select service and extended stay products, will capitalize on the LAX hotel submarket’s historically high occupancy rates and strong demand drivers. Sized to 50% of total project cost, the interest only loan will float at a spread of 425 basis points over 1 month LIBOR for 3 years and carries two 1-year extension options.

Challenges:
It was crucial to find a lender who was comfortable with hotel construction financing at this point in the cycle, a significant tranche of EB-5 financing, an unsubordinated ground lease and a parking agreement with an adjacent parking garage owner. As the Sponsor’s required bank execution, it was critical that the transaction was structured to comply with High Volatility Commercial Real Estate (“HVCRE”) banking regulation.

Solution:
GSP sourced a lender with extensive experience in ground-up hospitality transactions and with a favorable view of the supply constrained LAX submarket. GSP demonstrated the Sponsor’s attractive basis in the asset, the submarket’s resilient occupancy rates and average daily rates, and the project’s appealing design relative to the submarket’s dated competitive set, which ultimately allowed the capital provider to get comfortable with the transaction. GSP also assisted in structuring the transaction to ensure HVCRE compliance.

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