RANCHO MIRAGE, CA—Commercial real estate investment banking firm Continental Partners has secured $54 million in fixed-rate, non-recourse, interest-only refinancing for the Ritz-Carlton Rancho Mirage, a 244-room luxury resort here.
The financing was arranged by Continental Partners President Mitch Paskover.
“When it comes to financing hotels, many lenders remain somewhat conservative and are hesitant to advance higher leverage loans,” said Paskover. “The hotel sector has demonstrated steady growth over the past several years, yet some lenders believe that the market is reaching its peak as occupancies stabilize and average daily rates moderate. That said, while some capital sources are tightening their underwriting standards, there is still strong lender appetite for well-located hotels with solid financials and high ADRs.”
The sponsor, a private real estate investor and developer, had requested an interest-only, fixed-rate, non-recourse loan to replace the maturing construction loan to buy out its existing partner in the deal.
The Ritz-Carlton resort represents one component of an expansive mixed-use project that was to be developed in two separate phases. The first phase included the renovation and conversion of an existing hotel into a luxury resort and the addition of 16 for-sale residences.
“Despite the strength of this asset, many lenders were quoting a loan amount that did not meet the sponsor’s requirements,” said Paskover. “Most of the lenders were sizing loan amounts with debt yields between 10%-11% based on the last 12 months of historical operating statements. Additionally, the borrower requested a loan that would exclude the existing 16 condos and the Phase II land parcel, which were secured by the original construction loan. The challenge was that most lenders were unable to release the existing condos and Phase II land from the existing collateral due to the Homeowner’s Association which controls access to the hotel, condos and land.”
Continental Partners approached a number of lenders including banks, CMBS lenders and life insurance companies, and broadened the scope of capital sources. The firm also completed a methodical market survey to confirm the market’s occupancy and average daily rates for comps in the area. Based on this comprehensive survey, the lender was able to commit to a larger loan amount than originally requested, according to Paskover.
“By demonstrating the strength of the asset, the market, and the sponsor’s business plan, we were able to source a lender that would lower the debt yield below 9.5%, providing a loan amount that met the borrower’s objectives,” said Paskover. “We also successfully identified a lender that would release the existing condos and Phase II from the new loan.”
The property is located 68900 Frank Sinatra Drive here.