8 CMBS Loans That Let Borrowers Cash Out
The high volume of commercial mortgages maturing this year has left some property owners scrambling for funds to refinance. Not so for these eight borrowers, who took advantage of the strong price appreciation of their iconic office buildings, luxury hotels, super regional shopping malls, and even a portfolio of rental homes, to cash out … In some cases, the tune of hundreds of millions of dollars of equity.
9 W. 57th Street, also known as the Solow Building, is located just west of Fifth Avenue and features 50 stories with 1.5 million square feet of office space and approximately 72,000 square feet of retail space. In September, real estate developer Sheldon H. Solow obtained a $1.2 billion mortgage from JPMorgan Chase that refinanced a loan obtained just four years earlier, in 2012, cashing out $485 million of equity in the process.
Hotels are proving to be some of the most difficult commercial mortgages to refinance as prices level off and lenders tighten underwriting criteria. Short term leases and constantly changing room prices make cash flow hard to predict. Yet in July, the Blackstone Group obtained $715 million in loans on the 1,047-room Waldorf Astoria Boca Raton Resort & Club, paying off debt it had taken out in 2013. It also cashed out $136.5 million of equity that it had built up over the previous three years.
Owners of some more down market hotels are also getting a welcome reception from lenders who originate loans for securitization. In September, WoodSpring Hotels, owned by LG VP Holdings, founder Jack DeBoer and other investors, obtained a $235 million first mortgage and $40 million second mortgage on a portfolio of 63 extended-stay hotels that put $68.8 million of cash in its pockets.
This 24-story, 4,000,000 square foot building located on the north bank of the Chicago River, was the largest building in the world when it was built by Marshall C. Fields in 1930. Owned by the Kennedy Family for over half a century, it was sold to Vornado Realty Trust in 1989 for $369.1 million. Over the past five years, as demand for showroom space subsided, Vornado made $188 million in capital and tenant improvements, transforming much of the building into office space. In September, the borrower refinanced the property, obtaining a $675 million mortgage from Morgan Stanley and Barclays that allowed it to cash out $100 million, recouping some of its investment. A further $43 million in capital improvements are planned or in progress for 2016.
In July, global retailer L Brands and certain principals of property developer The Georgetown Co. obtained a $700 million loan on 1.3 million square feet of Easton Town Center, a super-regional mall in Columbus Ohio. Proceeds were used to refinance a mortgage obtained by the owners in 2007 and return $262.9 million in equity. It wasn’t all easy money. Kroll Bond Rating Agency, which rated a securitization of the loan, noted that the owners had spent more than $80 million on property improvements and upgrades since 2010.
During the housing crisis, private-equity backed firms scooped up thousands of homes at deep discounts, turning them into rental properties. These portfolios were financed by large commercial mortgages that were used to back mortgage bonds. One of the players, Progress Residential, refinanced its first deal in July. It obtained a $657.3 million loan secured by 4,068 homes, the bulk of which (70.2%) were previously securitized in a 2014 transaction. The refinancing allowed Progress, founded by former Goldman Sachs partner Donald Mullen, Jr., to cash out on additional equity. The 2,762 homes that were initially securitized in the 2014 transaction had an aggregate value, as measured by broker price opinions, of $549 million; in June, Progress obtained updated third-party broker price opinions on the rollover properties, which, in total, had increased in value by $58.5 million, or 10.6%, to $607.5 million.
Simon Property Group acquired Penn Square Mall, a 1.06 million square foot super regional shopping mall located in Oklahoma City, in 2002. In January, it obtained a $310 million loan from Morgan Stanley, refinancing $93.2 million of existing debt; the remaining proceeds of approximately $215.7 million (69.6% of the whole loan balance) were cashed out. It probably wasn’t a tough sell: the mall’s overall occupancy rate was approximately 99% as of December 2015 and has averaged 99% for the past 10 years. And there’s still a big cushion of equity; even after the cash-out refi, Simon still has approximately $350 million of equity in the property, which it has owned since 2002, according to Standard & Poor’s.
In March, Bank of America Merrill Lynch gave Ashford Hospitality Trust a $325 million first mortgage and $87.5 million second mortgage on a portfolio of 17 hotel properties in seven states, all affiliated with national recognized franchises. The new loans were used to pay off the prior $268.4 million mortgage and return $99.5 million to the borrower. Only fair, since Ashford had made some $101 million in capital improvements on the properties since 2011, according to Standard & Poor’s.
Best of SFIG Vegas 2017
Highlights from the Structured Finance Industry Group's 2017 conference in...
Aircraft Leasing in Full Flight
Grounded for several years after the financial crisis, aircraft lease...
Our Most Read Stories of 2016
From big banks gaining an edge in CMBS to Florida's utility regulator...
Who to Watch as Regulators Size Up Online Lending
This year federal and state regulators have started to pay closer attention...
Five Big Items on CFPB's Short-Term To-Do List
The Consumer Financial Protection Bureau's agenda is so packed it's no wonder...
Get to Know Your Subprime Auto Lenders
There’s no doubt that competition is spurring subprime auto lenders to...