Debt Can be Had for Hotels with Strong Sponsorship and Pre-COVID Execution

SAN FRANCISCO—Listed on the National Register of Historic Places, the 606-key Fairmont first opened in 1907 and is known for hosting every US president since William Howard Taft. Refinancing of $150 million was recently arranged for the historic hotel.

On behalf of the borrower, an affiliate of Mirae Asset Global Investments, JLL hotels and hospitality secured a five-year non-recourse loan through United Overseas Bank.

“This transaction is one of several recent closings that illustrates the increased availability of debt for high-quality hotels with strong sponsorship and good pre-COVID performance,” said Kevin Davis, a senior managing director in JLL’s hotels and hospitality group, and head of the hotel investment banking team.

Since 2015, the Fairmont San Francisco has undergone $16 million in renovations to public areas, guestrooms and infrastructure items. The hotel contains 62 suites alongside traditional guest rooms, more than 45,000 square feet of meeting and event space including a ballroom, retail outlets, fitness center, business center, in-room dining and restaurants such as Laurel Court Restaurant & Bar and Tonga Room & Hurricane Bar. It is also known for being the first hotel in the country to offer concierge service.

“The financing market’s positive reception to this asset was driven by the strong pre-COVID operating performance and high debt yield based on 2019 financials. In the current market, lenders are using 2019 performance as a proxy for where assets will stabilize in the future,” Davis tells GlobeSt.com. “Lenders’ confidence in the recovery of this asset was also tied to the tremendous quality of the real estate in a high barrier-to-entry market.”

The hotel re-opened in September after suspending operations in April due to the pandemic.

“Despite the challenges faced by the hotel sector, this financing opportunity was well-subscribed at various leverage levels,” noted Mike Huth, an executive vice president with JLL’s hotel investment banking team. “Ultimately, our client opted for a lower leverage loan with a much lower interest rate.”

CBRE anticipates wide distribution of the vaccine in the first half of 2021 and a return to more normal economic conditions by the second half. During the latter half of 2021, office occupancy should materially increase and brick-and-mortar retail should more fully benefit from a resumption of activity. Nevertheless, CBRE expects some residual effects of the pandemic, such as increased flexibility for office workers and consumer appetite for e-commerce, to remain prevalent beyond H1 2021. Full recovery in office, retail and hotels will take more than two years, the commercial real estate firm says.