Blackstone has funded a roughly $191 million loan backed by a pair of luxury properties in Costa Rica, The Four Seasons and the Andaz, a financing that illustrates the current paradox in the hotel financing market.
The financing was arranged by Lotus Capital Partners on behalf of the sponsors, Miami-based manager Gencom and New York-based Mohari Hospitality. Lotus brought the loan to market at a time when some of the old rules no longer apply for hospitality financings, which made the process feel more daunting at the outset, says Faisal Ashraf, Lotus founder and managing partner.
“There is a little bit of a paradox that has formed in hospitality travel, and accordingly, hospitality financing,” Ashraf says. “Resorts, which were usually on the frontier of hospitality financing, have fallen more in favor, in part because more people are going there in record numbers versus the traditionally reliable urban city hotel or big convention center hotel.”
This shift has meant that Lotus, which works across asset classes, has seen a growing willingness from lenders to consider resort financings – including outside the Continental US, which would represent close to one fifth of its business in 2022. There was strong interest from the lending community on the deal.
“The loan structure resembles any high-quality hospitality financing you’d see in the US,” Ashraf says. “But if you look under the hood and revisit the road to get here, you’ll see the impact of the complexity, which included navigating a localized ground lease, Napoleonic law, how to foreclose or even trap cash in Costa Rica.”
Never mind the wrinkles
The property is located on a 1,400-acre master-planned community with a nature reserve on a portion of the perimeter. Despite the wrinkles, what attracted Blackstone to the deal was institutional sponsorship, an irreplaceable asset and a proven business plan which was driven by more American tourists visiting Latin and Central America, Ashraf says.
The sponsors acquired the Four Seasons in 2016 and kicked off a significant capital improvement campaign, developing 20 branded residences. In 2017, the partners acquired the 153-key Andaz and launched a similar capital improvement campaign, building another 25 residences. To date, 23 of those have been sold.
Ashraf, whose firm has a long relationship with Gencom, notes that his background in the global financing markets, at firms including Credit Suisse, made it easier for him to understand, structure and explain the nuances of the deal to the capital markets.
“I’d like to think us bringing a certain core competency and deal experience from Europe, and other Caribbean markets such as Aruba, Bahamas and Bermuda definitely provided more conviction to the parties involved and got us more efficiently to the finish line. We definitely borrowed a considerable amount of innovation and guidance from my years in Europe, but I would still say working through so much complexity took an incredible effort from a team of highly capable folks from the sponsor and lenders side.”
Still, despite the success of this financing, Ashraf is not expecting to see a multitude of similar opportunities in Costa Rica. “It’s a thin market so we don’t foresee a lot of deals like this replicated in Costa Rica anytime soon. This was a unique moment in time with best-in-class assets, sponsor, and story line. What I do see is this financing raising the awareness and confidence levels of lenders considering high-quality resort financings in other Central American countries or the Caribbean.”
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