Starwood Capital Group secured $265 million in refinancing for a portfolio of 58 extended-stay and midscale hotels nationwide, representing a fraction of all the hotels it owns and operates.
Miami Beach-based Starwood hopes to execute the first lien mortgage about Oct. 28, according to a report from Kroll Bond Rating Agency. Starwood will use the funds to pay off existing debt, including a loan secured by 50 of the hotels that went into special servicing this summer.
Starwood owns and operates all of the 58 properties, including one in Homestead in South Florida, and others in Atlanta and Dallas. Fifty InTown Suites in 12 states total about 6,000 keys and 73.7 percent of the allocated loan amount, according to the report. Eight Uptown Suites properties in six metropolitan areas and five states total about 1,000 keys.
Starwood has spent $53.2 million on capital improvements on the properties since 2015, or about $7,000 a key. It has budgeted $14.2 million, or $2,000 a key, for renovations through the end of 2020 on rooms, lobbies and corridors at 44 portfolio InTown Suites properties, the Kroll report shows.
The portfolio had a 75 percent occupancy rate for the trailing twelve months ending in August, an average daily rate of $43.19 and revenue per available room of $32.41, according to the report.
An existing loan secured by the 50 InTown Suites went to special servicing in June, and received a modified six-month extension to January, with one more remaining six-month extension available, the report shows.
The Kroll report lists some concerns with the InTown brand. The brand lacks awareness among consumers and lacks a rewards program to entice them, according to Kroll. Almost half of the InTown properties feature outdated exterior corridors to guest rooms, which could prove difficult to rebrand the properties without capital improvements, if it comes to that.
The InTown properties were built between 1992 and 2007. The Uptown properties were built between 2017 and 2019 for $97 million.
Starwood bought its 50-hotel portfolio of InTown Suites from Mount Kellett Capital Management in May 2015. They are rebranded Sun Suites, Crestwood Suites and Home Towne Suites.
Starwood owns many more InTown Suites than it is currently refinancing. In 2013, Starwood bought 134 InTown Suites from Kimco and four Savannah Suites from Hospitality International in 2014 for $735 million.
According to Kroll, the lower-priced hotel markets in which InTown and Uptown operate fared better than the U.S. lodging industry as a whole under Covid-19.
Across the U.S., revenue per available room fell 80 percent in April, year over year, the worst month so far under Covid-19. It recovered somewhat to a 47 percent decrease year over year in August. Yet, the economy hotel market’s revenue per available room fell 43 percent in April, year over year, and 20 percent in August. And Starwood’s portfolio of 50 InTown Suites’ revenue per available room fell 13 percent in April, and 2 percent in August.
Kroll credits the InTown properties’ heightened performance to longer lengths of stay — 75 days on average — and limited amenities. Starwood CEO Barry Sternlicht previously referred to InTown Suites as like “quasi apartments.”
Almost all of the properties are in primary and secondary markets. Starwood’s Uptown hotel in Homestead, at 1071 Northeast 28th Avenue, is the largest property by allocated loan amount, at 4 percent. Nine properties are in the Atlanta area. Three are in the Dallas area.
The Homestead Uptown Suites is four stories with 127 keys. It opened in November 2018 and has an average length of stay of six days. Occupancy dropped to 44.1 percent in July, but rose to 58 percent in August. It has an average daily rate of $79.03 and revenue per available room of $47.66, according to the report.
Starwood also operates InTown Suites properties in West Palm Beach and Tamarac, but the report did not mention if these were part of the portfolio that was refinanced.
Overall, Starwood has had a tough time with Covid-19. In September, the real estate investment firm lost control of seven shopping centers after defaulting on Israeli bonds earlier this year. It handed over the keys to one of its suburban Chicago malls to its lender earlier this month.
In August, Starwood reported $139.7 million in second quarter earnings, or 49 cents per share, up 10 percent from $127 million, or 45 cents per share, in the same period of 2019. The REIT reported $265.6 million in revenue for the second quarter, down 14.6 percent from $311 million in the second quarter of last year.
Earlier this month, Starwood sued Ziel Feldman’s HFZ Capital Group, alleging that the developer defaulted on loan payments at an Upper West Side co-op conversion and failed to abide by a forbearance agreement.
In March, an affiliate of Starwood Capital Group bought the Villa Biscayne Apartments in Homestead for $28.3 million.
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