Starwood In Talks To Modify $577M Loan Tied To Struggling 63-Hotel Portfolio
Starwood Capital Group is planning to sell off pieces of a 6,300-room hotel portfolio tied to a nearly $600M CMBS loan.
The $577.3M CMBS loan backed by 65 hotels in 21 states was transferred to special servicing last month. Barry Sternlicht's firm is looking to modify the terms of the mortgage, which was originated in 2017, as the portfolio's cash flow has come under pressure.
The value of the portfolio was appraised at $956M eight years ago, but that has dropped by more than half, analysts at S&P Global estimated in a report last August.
“The portfolio performance has not recovered to pre-pandemic levels and appears to have stagnated recently,” S&P analysts wrote.
The hotels' average occupancy was 67% at the end of 2023, down from 73% in 2022, according to S&P. The portfolio's net cash flow was $37.2M, down from $63.6M in 2019.
The workout of the loan, which was divided and sold into more than a dozen CMBS trusts, is being handled by Starwood Property Trust subsidiary LNR Securities Holdings, according to the Morningstar Credit database.
The debt is set to mature in June 2027, and Starwood has already signed a term sheet with LNR to modify the loan, a spokesperson told Bisnow.
“The reason we are looking to modify the loan, despite the maturity being in 2027, is because we would like to proactively sell/release certain assets in the pool that will improve the debt service coverage on the portfolio and allow better access to certain reserve accounts for value-add renovations,” a Starwood Capital spokesperson told Bisnow in an email.
“[We] are now working through the due diligence and loan documents, expecting to close sometime in April,” the spokesperson added.
The interest-only loan covers 6,366 rooms in limited-service and extended-stay hotels run by Marriott International, Hilton Hotels & Resorts, InterContinental Hotels Group, Choice Hotels, Radisson Hotel Group and Larkspur Hotels & Restaurants in 21 states. The loan pays a 4.5% annual interest rate.
The portfolio’s largest concentration includes 10 hotels in California and 20 in Texas, including Larkspur Landing Extended Stay Suites South San Francisco and Sacramento, Candlewood Suites in Texarkana, Texas, and the Holiday Inn Arlington Northeast near Globe Life Field, the home ballpark of Major League Baseball's Texas Rangers.
A Starwood spokesperson said the hotels' sluggish financial performance was “due to underperformance of West Coast tech markets as well as elevated expense growth across the overall select-service hotel sector.”
“We’ve seen positive recent trends in these markets, which we expect to continue over the next two years ahead of maturity,” the spokesperson said in the email. “We are also focused on improving top-line growth with strategic management changes, technological advancements, new incentive/marketing programs, and executing value-added capex plans.”
Starwood’s push to modify its loan comes as the overall hotel sector is poised to see gradual improvement this year. Revenue per available hotel room is expected to increase 2% this year and accelerate to 2.6% in 2026, buoyed by improved international, business and group travel, according to a CBRE report published last week.
