Apollo Moves To Foreclose On Huge Downtown Atlanta Hotel After Default
The owner of the 763-room Sheraton Atlanta Hotel, the sixth-largest hotel in Metro Atlanta, has defaulted on its mortgage and is facing foreclosure.
Apollo Commercial Real Estate Finance is in talks with Philadelphia-based Arden Group, the owner of the full-service hotel at 165 Courtland St., to foreclose on the property after the borrower failed to pay off its $98.2M mortgage at the end of last year, according to a regulatory filing.
Arden bought the Sheraton in March 2017 for $64.2M, and took out a $77M senior mortgage with Apollo Commercial Real Estate Finance, a mortgage REIT that trades on the New York Stock Exchange under the ticker ARI. The loan was for the acquisition and a planned renovation of the Downtown Atlanta hotel, which is across the street from Georgia State University’s main campus.
The mortgage — which had an appraised 70% loan-to-value — had a three-year initial term and two one-year extension options, according to an ARI press release at the time. The loan valued the hotel at roughly $110M. ARI provided another $28M in debt secured by the property in 2019 with the same maturity date, according to the Reonomy database.
As of the end of 2021, ARI said in its annual report that the loan carried a $106M amortized cost. By the end of last year, it had fallen into maturity default, according to ARI's 2022 annual report, filed with the Securities and Exchange Commission last month.
ARI said in the filing it deemed in May that the borrower was "experiencing financial difficulty" and granted it two short-term extensions, but Arden — which owns the property through its discretionary fund Arden Real Estate Partners II — didn't pay off the loan at maturity. ARI recognized an expected $7M credit loss on the loan.
“We are in discussions with the sponsor regarding consensual foreclosure, and expect to reach an agreement in the first quarter of 2023,” ARI wrote in its annual report.
Arden invested an additional $7M in renovations after it acquired the Sheraton. The property includes 100K SF of meeting and events space, an indoor and outdoor pool, a fitness center and the Fandangles restaurant and bar.
A spokesperson for Apollo declined to comment. Arden officials didn't respond to Bisnow. Arden also owns the Westin Atlanta Perimeter North hotel in Sandy Springs, a nearly 200K SF flex industrial property in Peachtree Corners and a parking deck at 90 Ellis St. in Downtown Atlanta, according to Reonomy.
Arden’s stewardship of the Sheraton hasn’t been a smooth one since its acquisition. In 2019, the hotel was the source of a Legionnaires’ disease outbreak that sickened dozens of guests and forced Arden to briefly shutter the hotel.
The next year, the pandemic wreaked havoc on the hospitality industry. Arden had been offering the Sheraton for sale before pulling it from the market, but it listed it again in 2021 as Atlanta’s hotel market rebounded, the Atlanta Business Chronicle reported.
"There was a lot of interest last time around, but the pricing just wasn’t there," Arden Managing Director Rene Bardel told the ABC at the time. "There was a lot of people … looking for distress prices, and we are not that kind of player."
