Term Sheet: Trinity’s hotel financing trifecta; PGIM’s lending leadership changes; Rite Aid bankruptcy adds CMBS stress

Trinity Investments lands its third major hotel financing of 2023; PGIM Real Estate maps out a succession plan for its agency lending leadership; KBRA outlines CMBS stress on the heels of Rite Aid's bankruptcy filing; and more in today’s Term Sheet, exclusively for our valued subscribers.

They said it

“Commercial real estate is an asset class that will actually go through a more difficult time for the next couple of years”  

Christian Sewing, chief executive at Frankfurt-based Deutsche Bank, said in a Bloomberg segment this week that higher interest rates, varying underwriting principles and broader market volatility will dampen the landscape.

What’s new

Florida pairing: Trinity finalized a $750 million CMBS financing featuring two Florida hotel properties this week (Source: Trinity)

Trinity’s trifecta

Honolulu-based manager Trinity Investments this week completed its third major hospitality financing of the year, finalizing a $750 million commercial mortgage-backed securities financing on a pair of Florida hotel properties, partnering with New York-based manager Elliott Investment Management. The most recent financing, ORL Trust 2022-GLKS, is backed by the Ritz-Carlton Orlando Grande Lakes and the JW Marriott Orlando Grande Lakes.

For Trinity, 2023 has been a year of significant hotel deals, including its $835 million purchase of the Diplomat Beach Resort in Hollywood and the $515 million CMBS refinancing of The Westin Maui Resort & Spa in Ka’anapali, Hawaii. Destination and trophy hospitality assets have continued to garner financing despite market and sector volatility. Similarly, Miami-based manager Fort Hospitality this week sponsored the $410 million FS Trust 2023-4SZN, backed by Four Seasons hotels in Palm Beach and Miami.

Succession preparation

New Jersey-based manager PGIM Real Estate this week outlined leadership changes in its agency lending division ahead of the retirement of team leader Mike McRoberts on March 31 next year. The firm, a top-ranked manager in Real Estate Capital USA’s Debt Fund 40, confirmed in an October 13 release that Kelly Follain is slated to become PGIM’s next head of agency lending, effective January 1, 2024. She works as chief operating officer of the agency lending business, which maintains a servicing portfolio totaling $45 billion in agency loans. Follain’s appointment triggered additional role changes at PGIM Real Estate, covered here. The agency lending team changes follow a prior senior shakeup in September that saw its parent company carve out an alternative investment division.

Challenge and change

Rising insurance costs and the potential for office conversions topped the list of concerns for investors in Chicago-based trade group AFIRE’s annual International Investor Survey, published last week. The trade group, which represents foreign investors allocating capital to the US, found 82 percent of investors see rising insurance premiums and reduced availability of insurance as deterrents to potential investments. Within the beleaguered office sector, respondents estimated one-third of existing office properties will need significant upgrading to meet future occupancy expectations. There is a bright spot for the office sector, however – 90 percent of investors forecasted converting some of their US office assets to residential properties in the next five years.


Finishing the job

Alternative lenders continue to step in and provide financing, helping to bring construction projects to the finish line in today’s lender-light market. This trend was exemplified in a loan originated this week by New York-based manager Slate Property Group. The firm’s lending arm, Scale Lending, finalized a $142 million floating-rate loan to fund the last stages of construction, lease-up and stabilization of a 24-story, 521-unit apartment property in the Jamaica neighborhood of Queens.

“The lack of liquidity in the banking system has left private lenders as one of the main sources of leverage for borrowers,” Martin Nussbaum, co-founder and principal at Slate, told Real Estate Capital USA. “I expect further tightening and believe this trend will continue into 2024 as bank balance sheets continue to be secured and payoffs slow due to increased financing costs.”

Rite-sizing its portfolio

Healthcare retailer Rite Aid, which filed for Chapter 11 bankruptcy protection this week, will reject 347 leases and close at least 154 stores as part of a large-scale restructuring of its business, per a report published by New York-based rating agency KBRA. The Philadelphia-based retailer had been paying about $80 million in “dead rent” annually for leases on stores it no longer wanted to occupy but could not get out of without a bankruptcy filing, the report stated. While the bankruptcy filing will allow Rite Aid to restructure, concerns remain. The agency has identified 136 properties linked to $1.13 billion in CMBS loans where Rite Aid is a top five tenant. Of these loans, 29 have already been identified as a KBRA loan of concern.

Data snapshot

Distress builds

Distress in the US commercial real estate landscape increased for a fifth consecutive quarter to total $79.7 billion at September’s end, according to a report published this week by data provider MSCI Real Assets. The figure has not reached such a level since 2013, though it is still less than half of the peak reached during the global financial crisis.


CBRE taps national talent

Dallas-based advisory CBRE this week bolstered its national lending ranks on two fronts. The firm hired Tom Rugg as vice-chair of its debt and structured finance platform, and co-head of large loans. Effective December 1, Rugg will co-head the CBRE platform with Tom Traynor. Rugg spent 12 years at Frankfurt-based Deutsche Bank, where he worked previously with Traynor as well as James Millon, now president of US debt and structured finance at CBRE. Millon’s team also expanded this week with the hiring of DJ Elefant as a vice-president within the debt and structured finance group. Elefant previously worked at New York-based manager Greystone for nine years, focusing on multifamily and health sectors.

Loan in focus

Shopping surge: 3650 REIT this week originated a $71.5 million acquisition loan for a Sacramento-area retail center. (Source: Getty)

Retail vitality

The retail sector continues to see green shoots, evidenced this week by a $71.5 million acquisition loan for a 10-building Sacramento-area retail property. Miami-based manager 3650 REIT originated the 10-year loan on behalf of San Jose-based manager Cane Companies Management through its stable cash flow lending platform, said Justin Kennedy, co-founder and managing partner of the national lender.

Retail lending – and lending in general – remains case-by-case, and Kennedy noted that long-term analysis of each property’s potential is key in the underwriting process. In addition to the sponsor’s long history in the sector and market, the regional power center mall has been a strong performer. “Creekside Town Center has averaged 95.2 percent occupancy since 2010,” Kennedy said. The loan was arranged by Palmer Capital.

Today’s Term Sheet was prepared by Randy Plavajka with Samantha Rowan and Shihao Feng contributing