Driftwood Capital has originated a $24.3 million loan for Grand Heritage Hotel Group that is part of a larger $138.7 million financing package on a pair of resort hotels in Estes Park, Colorado.
The financing on the high-quality assets fits the profile of the loans the Coral Gables, Florida-based company is looking to make for its Driftwood Lending Partners fund.
“Given the dislocation as a result of the pandemic, we’ve been more focused on existing assets rather than development,” David Steiner, managing director of capital markets at Driftwood Capital, told Real Estate Capital USA. “I’ve been focused on brand-new assets in solid markets – major MSAs or markets where there is demand for leisure travel. We were focused on assets where sponsors and owners opened up right before the pandemic or after it started.”
The properties include Stanley Campus, which has 192 rooms and 31 condos, and the nearby Fall River Village Resort, an upscale property with 89 rooms. An undisclosed insurance company provided the $114.4 million senior loan, which was used to refinance existing debt on Stanley Campus and fund the acquisition of Fall River Village Resort. About $6.9 million of proceeds will be used to renovate the Stanley Hotel, Steiner noted.
Driftwood liked the location and operational synergies the deal offered, with Steiner noting both properties showed resiliency during the pandemic and have the potential for future growth as the market recovers. Additionally, there was a solid discount to the replacement cost and the sponsor put substantial equity into the deal.
Toward the end of 2019, Driftwood Capital launched a trio of funds respectively geared toward acquisitions, development and debt. “We entered covid without any legacy issues through those three new funds and had the dry powder to deploy in a dislocated environment,” Steiner said.
Steiner runs Driftwood’s lending fund as well as oversees all fund-level and asset-level debt for the firm’s other vehicles. The lending platform completed six deals in 2021 with total financing of more than $400 million with hopes to double that amount in the coming year. The firm is also developing several projects now, with one of the largest being a $350 million resort in Cocoa Beach, as well as others in Miami, Melbourne, Florida, Wilmington, Delaware and San Diego.
“Every lending deal, whether it was a new asset or an existing asset, was starting at zero,” Steiner said. “Regardless of where you were in 2019, it doesn’t mean your asset will get back to that. There was a good risk-adjusted return for newer assets because the majority of lenders didn’t want to lend and we were able to get a higher yield for the same risk profile.”
Going forward, borrowers are increasingly looking for lenders to tailor loans more specifically than in the past. “Borrowers have a specific plan that they’re looking to accomplish during their loan term and they’re looking for a lender to accommodate those requests,” Steiner said. “Hospitality requires managing the asset, oversight and the constant need to improve the asset. You’re constantly looking to modify the assets to drive the bottom line and need the lender to work with you during the term.”