Sonnenblick-Eichner arranges $50m San Diego hotel mortgage

The deal signifies continued resilience in the hospitality sector, according to co-founder Elliot Eichner.

Los Angeles-based real estate investment bank Sonnenblick-Eichner has arranged $50 million of non-recourse floating rate financing for Minneapolis-based Varde’s acquisition and renovation of The Inn at Rancho Santa Fe, an 82-room boutique hotel.

The loan, which was bid on by multiple debt funds and family offices, was ultimately funded by an alternative lender. Proceeds will be used to partially fund a top-to-bottom renovation of the property that will aim to bolster its presence in the California market, according to a press release from Sonnenblick-Eichhner.

The deal is a hopeful sign of hospitality’s continued resilience – and liquidity for the sector – despite numerous headwinds, according to Sonnenblick-Eichner principal and co-founder Elliot Eichner. The loan which made up about 85 percent of total costs including renovation, was priced in the mid-7 percent range

While inflation and interest rate hikes have pushed up the cost of capital, Sonnenblick-Eichner is still fielding strong interest from lenders.

“I think some lenders are starting to pull back their funding sources a little bit but there’s still plenty of liquidity, lenders are still in the market,” he added.

Yet, another concern is a potential recession with US GDP declining two straight quarters, a common, if unofficial, definition of a recession. Discretionary spending tends to get hit hardest during economic downturns, yet Eichner has yet to see a significant drop in consumer demand for resorts like The Inn at Rancho Santa Fe.

“It looks a little bit too early to tell. We don’t know how severe this recession is going to be,” he said.

One factor that could lower the cost of capital for borrowers is a pause from the Federal Reserve on rake hikes, which could help avert a severe recession as well. “People think the Fed is going to start backing off the pedal and decrease in 2023, which is right around the corner,” he added.

Most importantly, Eichner has not had the impression that lenders are souring on the market just yet.

“We’re not making calls to lenders who are saying that they’re not in the market. We have not heard that at all. The pricing is different, but we have not heard people say we’re not in the market,” he said.