GARDEN GROVE, CA—Continental Partners has secured $20.5 million in fixed-rate, non-recourse refinancing for the Sheraton Garden Grove-Anaheim South Hotel, a 285-room hotel near the Disneyland theme park. The financing was arranged by Continental Partners President Mitch Paskover.
“The Orange County hotel sector is experiencing remarkable growth and outperforming other U.S. markets,” said Paskover. “Driven by a thriving tourism industry, the region’s hotel market continues to demonstrate annual RevPAR growth and occupancy rates that are above national averages. Based on these fundamentals, there is strong investment activity and sustained lender appetite for quality hotels with high average daily rates throughout Orange County.”
According to a report by CBRE, average daily rates in the Orange County market are projected to increase 3.5% in 2017. Market occupancies average 77%, outpacing the national average of 65.4%.
Paskover added that Disneyland announced a $1-billion, 14-acre expansion of its theme park, while the Anaheim Convention Center will add more than 200,000 sq. ft. of meeting space by the fall of 2017. These expansions will further drive tourist demand for hotels in this market, according to Paskover.
Located approximately two miles away from the Disneyland Resort, which includes Disneyland Park, California Adventure and Downtown Disney, the Sheraton Garden Grove-South Anaheim Hotel encompasses 285 rooms within a 186,000 sq.-ft., seven-floor building on 3.1 acres.
Amenities include a first-floor lobby bar, lounge, and restaurant; an 8,500 sq.-ft. indoor meeting space; business center; a 24-hour Sheraton fitness center; a shuttle service to the Disneyland Park; and an outdoor pool and spa.
The sponsor had requested a fixed-rate, non-recourse loan to refinance the hotel and pay off a mezzanine loan, according to Paskover. Despite the strength of the market and the asset, however, a number of lenders who quoted the transaction were returning loan amounts that did not meet the sponsor’s requirements for a mezzanine loan payoff.
“Most lenders were sizing to debt yields around 11.5-12% and were skeptical of the asset’s strength based on the 12 months of historical operating statements and the quick ramp-up in net operating income,” explains Paskover.
Continental Partners approached a number of lenders including banks, CMBS conduits and life insurance companies and broadened the scope of capital sources. The firm also conducted an extensive market survey using an STR report to confirm market occupancies and average daily rates for comps in the area.
“By communicating the strength of this asset and the demand in this market, we were able to secure a lender who was comfortable enough with the deal to lower the debt yield below 10.5% and commit a larger loan amount than originally requested,” said Paskover. “In doing so, we were able to successfully refinance the existing loan and also provide enough cash-out to pay off the mezzanine loan, thereby meeting all of the borrower’s objectives.”
The five-year fixed-rate loan, priced in the low 5% range, is sized to 65% of cost with a 30-year amortization schedule and a debt coverage ratio of 1.40.