But the ratings agency said the hotel may be overly reliant on corporate meetings.
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One of downtown Dallas’ most famous skyscrapers could soon receive hundreds of millions of dollars in new financing.
A $270 million refinancing loan and an additional $30 million mezzanine loan are in the works for the 1,841-room Sheraton Dallas Hotel, according to a presales report from S&P Global Ratings, which calls the three-building hotel on Olive Street the largest in Texas.
The loan is part of a debt pool that will be converted into commercial mortgage-backed securities to be sold to investors. The loan was arranged through Goldman Sachs and JPMorgan Securities, and its sponsors include property owner Elliott Investment Management LP and San Francisco investment firm Chartres Lodging Group LLC, according to the report. KeyBank NA is the master servicer.
The transaction is expected to close on April 30. The floating-rate interest-only loan matures in two years, in April 2026. In the report, S&P analysts noted that interest-only loans pose a high refinancing risk due to the large loan balance at maturity.
According to S&P, the property has undergone approximately $99.6 million in capital investments since 2015, with most of that spent between 2018 and 2020. Renovations have included a new lobby and public spaces, improved meeting spaces and the addition of new restaurants and bars.
The hotel occupies an entire city block: The central and south towers were built in 1959, the north tower was added in 1981, and the hotel’s convention center was completed in 1998. Demand for the hotel comes from downtown corporate offices, sports and entertainment, museums and the Kay Bailey Hutchison Convention Center, according to the report.
Like many hotels, Sheraton has struggled during the COVID-19 pandemic. While its previous mortgage didn’t trigger interest shortfalls or payment forbearances, the terms were modified during the pandemic to include a halt to payments on furniture, fixtures and fittings that were due through 2022, according to S&P.
Since then, performance has recovered and exceeded pre-pandemic levels, with net cash flow expected to reach $37.7 million in 2023, 54% higher than 2019.
S&P linked the performance to renovations and a recovery in demand from meetings and group travel, which will account for about 60% of hotel room demand in 2023.
Airlines are also big customers for Sheraton: Contracts with Southwest Airlines, Qantas Airways and Alaska Airlines accounted for 10% of room revenue last year.
“Compared to hotels with more diversified corporate, leisure and group demand, these hotels may be subject to greater volatility in an economic downturn as corporate meetings may be postponed, curtailed or canceled,” S&P analysts wrote.
