GSP successfully placed the non-recourse acquisition debt of a Limited Service Hotel portfolio in various Florida locations. The 70% of purchase financing of the three asset portfolio is fixed at 4.45% for five years, amortized over 25 years.
Challenge: The 70% loan-to-purchase sized to a 10.5% debt yield. Both metrics push the limit of aggressive underwriting guidelines and are virtually without precedent for limited service hospitality post financial market melt-down. All three subjects are impacted by a seasonality component.
Solution: Spreads tightened significantly during our due diligence process and GSP was able to negotiate an “all-in” coupon 40 basis points below the application floor. Although the debt yield remained constant, the lower coupon reduced the debt service and improved the debt coverage ratio. GSP addressed the seasonal cash flow fluctuations by structuring a reserve that burns down by a certain percentage each time the Borrower hits a minimum cash flow hurdle during the off-market months. This format mitigated the lender’s risk while minimizing trapped cash for the Borrower.
