Buckhead Marriott In Special Servicing After Years Of Cash Flow Struggles

The owner of the Atlanta Marriott Buckhead Hotel & Conference Center appears to be throwing in the towel after taking years of body blows from the pandemic.

An affiliate of Alpharetta-based Atrium Hospitality has fallen behind on debt payments for the $50M mortgage tied to the 349-room hotel at 3405 Lenox Road NE, which has been transferred to a special servicer, according to commentary in the Morningstar Credit database.

“The Borrower is unable to continue making monthly loan payments, due to insufficient Cash Flow,” special servicer LNR Securities wrote in October commentary. “Servicer is working with Borrower to ensure property level [operating expenses are] paid on time. Does not appear as if Borrower is willing to inject additional equity into the transaction.”

The property was formerly the Sheraton Buckhead Hotel Atlanta before it underwent a $45M renovation in 2008 and was converted into a Marriott, according to a loan prospectus filed with the Securities and Exchange Commission.

PHF II Buckhead LLC, an affiliate of Atrium, took out a $50.5M loan in 2016 from JPMorgan Chase that was packaged into a CMBS loan. There is a $49.4M balance remaining on the loan, according to Morningstar.

The hotel's appraised value was $78M in 2016, according to the prospectus. The hotel was appraised at a value of $38.4M this year, according to Fulton County Board of Assessors records, down from $50.8M in 2020. Besides the rooms, it also has more than 30K SF of meeting and event space.

The Marriott closed because of the pandemic and reopened in July 2021, according to LNR commentary. LNR scheduled foreclosure auctions for the property in September and October 2021, Buckhead.com reported at the time.

However, according to commentary via Morningstar, it was negotiating with Atrium at the same time and eventually struck a deal to modify the loan in July 2022.

Atrium stayed current under that modified loan for two years, and the loan was transferred back to the CMBS trust's master servicer, Wells Fargo, but the hotel struggled. Its occupancy was 50.8% at the end of 2022 and 56% a year later, according to Morningstar. Its net cash flow was slightly negative at the end of last year. The $50.5M loan was underwritten at 80% occupancy. 

“Cash flow in 2022 and 2023 was virtually non-existent,” Morningstar Credit Senior Vice President David Putro wrote in an email.

While its performance has perked up this year — occupancy was 60% at the end of June, while net cash flow was nearly $2M in the black, according to Morningstar — it appears Atrium has given up trying to save the hotel. The loan was transferred back to LNR for special servicing last month.

In its most recent commentary note, LNR wrote that it was engaged in discussions with the borrower, but is also preparing to file to put the hotel into receivership or foreclose.

Atrium operates roughly 20,000 hotel rooms across 79 properties, according to a recent press release. Atrium officials didn't respond to calls and emails seeking comment.

The U.S. hotel market bounced back from the pandemic more quickly than many expected, especially in Sun Belt markets like Atlanta. But in recent months, performance has flagged as travelers tighten their budgets and focus more on overseas trips.