Maria Wood is senior editor of magazine.
WHITE PLAINS, NY—In an effort to get its new prototypes for Sheraton and Westin off the ground, Starwood Hotels & Resorts has hooked up with a capital source to provide potential developers with both first mortgage and mezzanine debt financing.
The financing facility, which is being managed by Redwood Capital of San Francisco, could go as high as $1 billion, according to Theodore W. Darnall, president of locally based Starwood's real estate group, depending upon how many borrowers make use of the debt vehicle. Contributing to the revolving credit facility will be primarily institutional lenders.
The program combines both a fixed-rate first mortgage and a floating-rate mezzanine piece with a maximum loan-to-cost ratio of 85%. The paper can be structured to suit the needs of the borrower, with an average blended rate of around 7.5%. Beginning as a construction loan, the debt converts to permanent once the hotel is open. Ultimately, the loans will be packaged and securitized. As of yet, no developer has inked a contract to utilize the debt vehicle, Darnall states. He does note that between 60% to 70% of the developers who have expressed interest in developing a new Sheraton or Westin "are looking at the credit facility."
Starwood announced the new models last fall. In essence, they are scaled down versions of urban-built Sheratons and Westins that would be more amenable to a secondary or suburban market. A Sheraton using this turnkey layout is expected to break ground later this year in Tarrytown, NY. That development began before the credit facility was in place.
With 78 Westins in North America, mostly in urban markets, and a little over 240 Sheraton hotels in North America, there is much opportunity to grow the brands, says Bill Linehan, VP of product development for Starwood. The financing facility is an outgrowth of talking to developers and discovering the kind of assistance they needed, Darnall says. In addition to site selection, "the constant theme from developers was someone who could provide non-recourse financing for a high percentage of the cost of completion," he recounted. Starwood receives no rebates or commissions for steering a developer to the facility. Its role is to pre-screen developers for their ability to develop such a project. The purpose behind the program is to expand its brands. "The goal is to improve our distribution, get into markets where we currently don't have product and build long-term relationships with the development community in order to do multiple projects," Darnall says.
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