Trinity, Elliott JV see lender resiliency for high-end hotel sector via $750m CMBS refinance

The joint venture secured a $750m floating-rate CMBS deal backed by a pair of luxury Florida resort properties.

A $750 million floating-rate commercial mortgage-backed securities deal backed by a pair of luxury Florida resort properties owned by a joint venture managed by Elliott Investment Management and a Trinity Investment entity shows continued lender resiliency for high-end, well-located properties in this asset class. 

New York-based Elliott and Honolulu-based Trinity obtained the loan, which is being securitized in ORL Trust 2023-GLKS, from a consortium of lenders including Goldman Sachs and JPMorgan Chase Bank, and Barclays Capital Real Estate funded the loan.   

The loan proceeds will be used to refinance the existing $650 million of mortgage and mezzanine debt, return $87.5 million in equity to the borrower and fund closing costs of $12.5 million.  

Sean Hehir, president and chief executive of Trinity, said as the transaction volume in the lending market hasn’t totally rebooted, the quality of loan deals has become more important. “It is challenging to get financing, but I think it all comes back to the quality of the asset, quality of the market, quality of the sponsorship, and relationships. Those are everything that lenders are looking for,” he added. 

Deal highlights 

The two-year interest-only floating-rate mortgage loan has three one-year extension options, with a debt-service coverage ratio at 2.29x and a loan-to-value ratio at 44 percent. 

Eric Rothfeld, managing director of commercial mortgage of New York-based rating agency Fitch Ratings, who oversaw the rating process, noted the market has seen more lower-leveraged loans recently, partly because lower-leveraged loans are more attractive to investors in a more volatile market and when interest rates stay high.  

The CMBS loan was backed by the Grande Lakes Orlando Resort, which comprises two adjacent full-service AAA Diamond-rated luxury hotels, the Ritz-Carlton Orlando Grande Lakes and the JW Marriott Orlando Grande Lakes, together providing 1,592 rooms. Initially constructed in 2003, the resort has been renovated from 2019 to 2023, spanning 409 acres and providing recreational facilities including spa, golf club, tennis courts and swimming pools. The resort is also near to well-known theme parks such as Universal Orlando Theme Parks and Walt Disney World. 

According to the CMBS loan’s presale term sheet, the resort has benefited from strong recent performance, with the average daily rate increasing 36 percent and revenue per available room going up 23 percent from 2019-2023, altogether driving a 27 percent increase in net cash flow to $86.9 million in August.  

Hehir said coming out of the pandemic, the hotel sector is benefiting from the stronger income generated on the properties as domestic travel picks up, and the mechanism of leasing rooms up every night can help the assets stay ahead of inflation and reprice timely. 

“[The hotel sector] typically trades at wider cap rates, so when you’re in a higher interest rate environment, we don’t have as much negative leverage as other asset classes have,” he added. 

However, given the uncertain outlook of interest rate volatility, Hehir said the company has bought interest rate caps for the loan to hedge potential risks in the floating rate. “It is expensive, but you have to weigh the risk of not having a rate cap,” Hehir added.  

The climate question 

Hehir noted Trinity takes climate risks into consideration during its underwriting process. This includes considering rising insurance costs, especially for properties in natural disaster-prone areas like South Florida. 

“We do the best we can in terms of bidding and auditing property taxes and bidding on insurance and making sure we have the best coverage,” Hehir said. “Should we have a once-in-a-5000-year storm coverage or was once-in-1000-years [coverage] adequate? That’s a negotiation with the lenders with our equity partners and hotel brands,” he added. 

The refinancing of the Orlando hotel was Trinity’s third move this year in acquiring or refinancing trophy hotels. Together with Credit Suisse Asset Management, Trinity assumed the outstanding CMBS debt while acquiring the Diplomat Beach Resort for $835 million in February 2023. In July, the company partnered with Oaktree Capital Management and secured a $515 million CMBS loan to refinance the Westin Maui resort in Hawaii. 

Hehir said the deals proved Trinity’s business plan to buy irreplaceable resorts in destination markets and then transform the properties to add value through renovations and improving customers’ experience. “Being able to refinance in this environment and upsize the existing loan we had is a testament that the business plan is proving out,” he added.