A mortgage backed by hotels, including the former Courtyard Philadelphia Downtown in a historic building near City Hall, has been assigned to a business that manages troubled commercial mortgages as the loan approaches its end date during a rough period for the hospitality industry.
The loan backed by the 21 N. Juniper St. hotel, now known as the Notary Hotel, and three other properties was sent last week to a “special servicer” team at Wells Fargo & Co. ahead of the debt’s June 2020 maturity, Wells spokesperson James Baum said in an email Wednesday.
A loan’s maturity marks the date by which it must be repaid, refinanced, modified or extended to avoid default. This loan has “conditional extension options available,” said Baum, who declined to share other details, citing confidentiality agreements.
For hotels, such conditions may require borrowers to meet defined occupancy or revenue targets, which could explain why the mortgage was sent to a special servicer, said Chester Spatt, a Carnegie Mellon University finance professor.
Occupancy at hotels in Philadelphia and its surrounding Pennsylvania and South Jersey counties fell to 22% during the week ended April 4, down from 71% during the same week a year ago, according to hospitality industry tracker STR Inc. Revenue per available room, a standard metric used in the hospitality industry to gauge hotel performance, fell 82% to $17.42 from $93.97 over that time.
“In ordinary times, getting the extension might be easy,” Spatt said. “In the current environment, the relevant conditions might not be satisfied.”
The Notary’s debt makes up about a fifth of the $296 million that owner Braemar Hotels & Resorts of Dallas borrowed against the four properties, which also include hotels in Seattle, San Francisco and Chicago, according to a report from commercial debt tracker Trepp.
The four hotels’ debt was packaged into what’s known as a commercial mortgage-backed security (CMBS), a type of a bond composed of property loans.
This kind of packaged debt is particularly problematic for hotel owners in danger of default, because such mortgages are held by multiple investors, rather than a single lender. This can complicate efforts at seeking forbearance, according to the American Hotel & Lodging Association.
“Hoteliers have a limited ability to work directly with holders and servicers of CMBS debt to achieve meaningful relief during this crisis,” the leaders of the AHLA and the Asian American Hotel Owners Association wrote last month in a letter to federal financial agencies. “It is critical that regulators act swiftly to ensure the over $300 billion worth of CMBS debt backed by hotel and lodging assets remains in good standing.”
The Notary Hotel building was constructed in the mid-1920s as a government office building known as the City Hall Annex and was redeveloped in the late 1990s by developer Brickstone Cos. into the Courtyard Philadelphia, a Marriott International Inc. brand.
Braemar, which focuses on high-end luxury hotels, renovated the property last year to join Marriott’s upscale Autograph Collection hotel line as the Notary. Braemar’s properties also include the Ritz-Carlton St. Thomas in the U.S. Virgin Islands and the Hilton La Jolla Torrey Pines in California.
Braemar’s shares closed Wednesday on the New York Stock Exchange at $2.39, down about 73% this year. Bloomberg News reported in late March that the company was exploring the sale of some holdings amid travel restrictions aimed at fighting the coronavirus.