Commercial Real Estate: Eye On Hotels [Housing Tracker]

A Lender's Empire Is Built, Then Crumbles.  “Mortgages Ltd. has gone in less than two years from being Arizona's largest private commercial real-estate lender to a company plunged into bankruptcy following the suicide of its CEO, Scott Coles… The company's undoing was the result of heavy investment in a falling market, investors pulling out and a shortfall of cash. The collapse has cut off payments to thousands of panicked investors and stalled several of the Valley's biggest commercial projects.” (Arizona Republic, Aug. 31)

Marriott Drops Plan For Big Hotel. San Diego, California: “Marriott Corp. (MAR) has pulled out of its plan to build the West Coast's largest hotel – with 1,929 rooms – at Ballpark Village, just east of Petco Park. JMI Realty cited “current turbulence and uncertainty in the capital markets,” plus delays in securing city approval for the project, which changed in scope at least twice… San Diego would have received an estimated $18 million a year in hotel taxes from the project. Those taxes would have more than covered the city's $11M annual debt payment on the ballpark, JMI officials said… Marriott saw its income drop 17% in Q2’08.” (Sign on San Diego, Aug. 30) 

San Fran Boutique Hotel Gets $45M Refi.  California: “A refinancing deal valued at $45 million has closed for the 201-room Hotel Monaco San Francisco. Property owner Kimpton Hotel & Restaurant Group, on a payoff deadline and feeling the chill of the CMBS market, found a helping hand in GE Real Estate (GE), which provided a three-year fixed-rate on-book loan. Located in the heart of downtown, the boutique lodging destination known today as Hotel Monaco was born as the Bellevue Hotel in 1910. Kimpton acquired the property in 2004 and after a $24M renovation, re-opened its doors as the Hotel Monaco, the first to carry Kimpton's Monaco flag.” (Commercial Property News, Aug. 29) 

Catskills Hotel Project Gets $525M in Redevelopment Funding. “Redevelopment of the site that was once home to the Borscht Belt’s legendary Concord Hotel, in Kiamesha Lake, N.Y., has taken two major steps forward. In one, Concord Associates L.P., joint venture partner of Empire Resorts Inc., has completed a $225 million equity loan financing with Entertainment Properties Trust, a REIT based in Kansas City. In the other, the County of Sullivan (N.Y.) Industrial Development Agency has announced a $300 million bond financing for the resort’s redevelopment, the agency’s first major funding for the $1.1 billion project… The Concord Hotel was sold at a bankruptcy auction in January 1999 for $10.25 million.” (CPN, Aug. 29) 

FDIC Adding 125,000 SF to Energy Plaza Sublease.  Dallas, Texas: “Due to increased workload, the FDIC's regional office has grabbed another 125,000 sf in the CBD's Energy Plaza in a five-year sublease with Energy Future Holdings Corp., formerly TXU Corp. The federal agency moved in about one year ago, taking 185,000 sf in a 10-year sublease.” (Globe St., Aug. 28)

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Comments

[johnthebear:]

Thanks Judy, good job. Your first story is a "must read" for those who invest in REITs or in IYR.

"A Lender's Empire Is Built, Then Crumbles. “Mortgages Ltd. has gone in less than two years from being Arizona's largest private commercial real-estate lender to a company plunged into bankruptcy following the suicide of its CEO, Scott Coles."

Also, when I clicked on the story for the full story, I found the comments at the end very revealing and instructive for those wanting to buy real estate in this market.

Just think, developers were paying 14% for money which Mortgages Ltd. had borrowed from the bunny at 13%! How can developers afford 14% construction loans on property they are developing which will have a cap rate of 6%?

Apparently none of these projects had an honest feasibility study. This is terrible. So many investors all over the country will lose big as this thing unwinds. Prices of the foreclosed commercial property will surely fall, and these "comparable sales" will certainly have to be reflected in mark-to-market accounting by the REITs.

The relatively high dividends paid by the REITs can never make up for lost capital.

2008 Sep 03 10:28 AM

[Politicus F...:]

You article brief on the Hotel Monaco San Francisco refinancing has details wrong. The Hotel Monaco has been operating under that name since at least the late 1990s, well before 2004. When I was a VP in San Francisco at a large financial firm, I used to hold dinners and have out of town employees stay there.

2008 Sep 03 10:41 AM

[SA Editor J...:]

John,

Thanks for the tip about the comments. Leverage rates vs. cap rates were definitely out of control. Good point about REITs. Anyone know which ones are more exposed to the Arizona market?

2008 Sep 03 12:53 PM

[SA Editor J...:]

Dear Politicus FInch,

Sorry but the excerpt comes directly from an article on Commercial Property News' website. I googled it looking for independent corroboration and came up with another reference, but no dates. Looks like a beautiful hotel though...

- Judy

2008 Sep 03 12:57 PM

[2houndz:]

John - don't be too surprised about the lack of feasibility on real estate projects. I am a commercial developer and have worked for three major REIT's as well as a couple of private developers. I am continually amazed at the number of people in this business who don't have a clue what they're doing.
The retail side seems to be the worst. Go to the ICSC convention in Vegas next May and you'll find way too many people who have an impressive Rolodex, an Armani suit, Louis Vuitton briefcase, HP12-C calculator and they can't amortize a ten dollar bill over three years. I'm not talking about everybody of course, but the preponderance of idiots is frightening. Across the board, from CEO's to leasing folks and household names that anyone who follows the stock market hear every day.
The Steve & Barry's fallout is a good example. We were out there three years ago signing those deals for $7 rent with a $40 tenant allowance (TA- a cash payment to the tenant) and selling them as fast as we could on an 8% cap rate, which was the best thing for my employer at the time, but not something I'm particularly proud of. According to the ICSC just last week, developers apparently gave as much as $80 TA with no intent to sell the assets. To make matters worse, they spun it to suggest that more TA is a good thing and they plan to do more of it. When you figure out how that's a good thing, please let me know.
A stock and the underlying company are often not the same thing especially when it comes to REIT's, and I trade where there's money to be made, but be careful about the underlying companies. I know first hand that a lot of the analysts don't understand them. And I know there are some good REIT's as well, but there are more smoke and mirrors and really stupid deals than most folks probably realize.

2008 Sep 03 08:26 PM