UNITE HERE: Rialto, Barclays and Citigroup Have Refinanced the Hilton Anchorage: But What Comes Next for the Challenged Property?

NEW YORK--()--Documents filed last week in Alaska indicate that three real estate giants have combined to refinance the Columbia Sussex’s Hilton Anchorage Hotel. Rialto Mortgage Finance, LLC, Citigroup Global Markets Realty Corp and Barclay Bank PLC were listed as secured parties in documents filed with the State of Alaska on March 2, 2017, a day after the Hotel’s previous loan matured. The Hotel, which has been combatting mold since at least 2014, had a March 1st deadline to make an $81 million balloon payment of its CMBS loan balance.

The previous Hilton Anchorage loan was financed through a Commercial Mortgage Backed Security (CMBS) structure. CMBS mortgages typically carry a 10-year loan term requiring a significant balloon payment due at the loan’s maturity date.1 Where a borrower doesn’t have the capital to satisfy the loan balance, a refinance is typically sought.2 If a loan matures and payment is not satisfied or the borrower defaults on the loan, the lender can seek recourse through the foreclosure process.

Details of the refinance are unknown. But in refinancing the hotel’s debt, the banks have extended credit to a property whose recent performance might have given some lenders reason for caution. The previous loan for the Hilton Anchorage was placed on a servicer watchlist on June 7, 2016.3 According to Bloomberg Terminal, the hotel’s Debt Service Coverage Ratio (DSCR) “per the 09/30/2016 analysis was at 1.03, which is a significant decrease compared to the prior year analysis DSCR of 1.30.”4A DSCR of 1.0 means that a property’s cash flow equals the cost of servicing its debt.

Meanwhile, documented water leaks during 2016 in the front lobby and elsewhere suggest that hotel management has been unable to eliminate conditions that can lead to mold growth, a problem that first surfaced at the hotel in 2014 when the hotel took 48 rooms out of service for repairs. The hotel has also been the site of a longstanding labor dispute and consumer boycott.

Columbia Sussex once was one of the U.S’s largest owners of full-service hotels. The company grew during the boom years; credit was easy and Columbia Sussex borrowed heavily. At its peak, Columbia Sussex had over 80 properties; today the company has less than half of that number. Much of the shrinkage is attributable to the company’s failure to meet debt obligations, an issue the company has struggled with even while the lodging industry prospered. Five Columbia Sussex properties have faced recent debt problems which have resulted or could result in the loss of these properties; Bloomberg Terminal has listed two of them as “disposition/liquidation” as of February, 2017.5 The Hilton Anchorage’s occupancy rate and DSCR for the year ending 2015 fell within the range of these distressed properties, according to the union’s analysis.6

As lodging industry fundamentals weaken, hotel properties will likely face the prospect of a more challenging economic environment. Time will tell how the aging Hilton Anchorage may fare in such an environment.

UNITE HERE is a labor union that represents 270,000 working people across Canada and the United States. UNITE HERE Local 878 represents workers at the Hilton Anchorage where there is currently an active labor dispute

1 https://www.principalglobal.com/documentdownload/42194

2 http://hotelexecutive.com/business_review/3917/the-hospitality-borrowers-approach-to-the-cmbs-work-out-dilemma

3 Bloomberg terminal. Accessed: 11/8/2016

4 Bloomberg terminal. Accessed: 2/17/2017

5 Bloomberg terminal. Accessed 2/24/2017

6 Distressed properties identified in the union’s analysis were Minneapolis Airport Marriott, Marriott Knoxville, Marriott Jackson, Phoenix Airport Marriott, and Marriott Renaissance Philadelphia. The Anchorage Hilton’s average occupancy for year ending 2015 was 58%, or third highest among the studied properties, and its DSCR was 1.24, or second highest among the studied properties. See comparison of these properties to Hilton Anchorage on p. 10 of our report “Hotel Company Columbia Sussex Corporation Flagging Debt Issues for Lenders and CMBS Bondholders.

Contacts

UNITE HERE
Shelli Sareen, 416-384-0983 x315
ssareen@unitehere.org

Release Summary

Rialto, Barclays and Citigroup extend credit to Hilton Anchorage; a property whose recent performance might give some lenders reason to caution. The hotel has been combating mold since at least 2014.

Contacts

UNITE HERE
Shelli Sareen, 416-384-0983 x315
ssareen@unitehere.org