Non-Recourse Permanent Financing for Downtown Detroit Boutique Hotel

Proceeds: Confidential
Rate: 5.7% Fixed for 10 Years
Term: 10 Years
LTC: 75%
LTV: 50%
Lender Origination Fee: None
Recourse: Non-Recourse

Transaction Description:
During the downturn our Sponsor identified a rundown non-operating hotel in downtown Detroit. Investing over $10 million in upgrades/renovations our Sponsor was able to create one of Detroit’s finest trendy boutique hotels and restaurants. From an extremely distressed site the Developer was able to open this 144 room boutique hotel that pays tribute to, “Made in Detroit”. The turnaround of the Property, led to a turnaround of the entire neighborhood.

Challenges:
Hotels are one of the most difficult property types to finance. Hotels outside major cities are even more challenging and Detroit hotels are the most difficult.

The result was that most capital providers refused to consider looking at the site. In addition, the Sponsor had the grand opening only about 18 months ago which caused many groups to be concerned about the ability to succeed long-term. Finally, non-recourse hotel financing is problematic because hotels are part real estate and part operating businesses.

Solution:
George Smith Partners successfully placed a non-recourse, senior loan which was securitized and sold to investors. GSP determined that by placing the loan within a Mortgage-Backed Securities pool, the overall strong yield would benefit the pool and the location risk would be minimized. With this structure, our Sponsor was able to buy out his partners and repay a personal loan he made to the Property. Because of our expertise in this type of financing, we were able to identify an international bank, which could speed up the process and work with the Sponsor’s attorney to navigate the complex issues of a securitized loan. With interest rates moving down at the end of the process we were also able to reduce the 6.05% floor rate by 35 bps and expand the amortization to 30 years. Within 35 days of going into application we were able to allow our Sponsor to buy out his partners, obtain a non-recourse loan that repaid an internal construction loan and close at better rate and amortization than originally quoted.

Advisors

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