A mega-convention center hotel in downtown Dallas, the largest in Texas, could secure a total of $300 million in two loans once pre-sale report details are released by the end of the month.
The owners of the Sheraton Dallas Hotel (38-story hotel) 400 N. Olive StreetA $270 million commercial mortgage loan and $30 million mezzanine loan could close if the borrower closes on the potential transaction around April 30, according to an S&P Global Ratings presale report released this week. There is sex. The loan is secured by fee simple and leasehold interests of borrowers Elliott Investment Management and Chartres Lodging Group. The owners did not return calls seeking comment.
“Sheraton Dallas is the largest hotel in Texas, with 1,841 guest rooms spread across three towers and a three-story convention center with more than 230,000 square feet of meeting and convention space,” S&P Global said. Ratings analysts said in a report.
The rating agency added that the company has determined a loan-to-value ratio of 74.5% based on the appraised value of the properties underlying the proposed transaction.
Sheraton Dallas' ratio, based on a $270 million mortgage secured, is considered “low leverage” by S&P, the report said. In contrast, an appraiser's current valuation of a hospitality property results in a loan-to-value ratio of 53.8%. The rating agency's team estimated the “long-term sustainable value'' to be 27.9% lower than the appraised value.
According to the rating agency, the additional mezzanine loan debt of $30 million will increase the LTV ratio to 82.9%.
“The mortgage is a refinance, and the loan amount is [are earmarked] “To repay approximately $275 million in debt, pay closing costs and return $19 million in capital to the sponsor,” the report said. The borrower purchased the property in late 2017 for $224.5 million and has since spent approximately $84.2 million renovating the property. According to the report, the acquisition.
The two-year variable rate commercial mortgage is scheduled to mature on April 9, 2026, with three one-year extension options, according to the report. According to the report, the lenders selling commercial mortgage-backed securities (CMBS) loans are Goldman Sachs and JPMorgan Securities. KeyBank is the servicer.
S&P Global Ratings considers lodging properties like the Sheraton Dallas to be among the highest-risk lodging properties due to the routine nature of their pricing structure, as well as high operating costs and high expense ratios compared to other lodging properties. He said he thought it was one of the facilities.
Generally speaking, the CMBS market for hotel real estate has a hunch that interest rates could fall later this year as property owners see impending debt maturities coming up. The transaction is possible, said Jan Freitag, STR and senior vice president of lodging insights nationwide. Director of Hospitality Analytics at CoStar Group.
“We can't pretend anymore. Property owners just want to extend their loans,” Freitag added. “There is an appetite on the part of borrowers to get the deal done. They expect to refinance their debt at a lower interest rate within two to three years.”
Freitag said the Dallas-Fort Worth area is one of the strongest lodging markets in the country, with employees returning to offices and business picking up for small businesses in the region. He said hotels with superior meeting space will continue to outperform their peers.
Sheraton Dallas' real estate valuation ranks Dallas No. 9 on the list of U.S. convention destinations, with convention activity a key component of the market's demand mix, the report said. For example, at the Kay Bailey Hutchison Convention Center, which is a mile away from his hotel, $3.7 billion redevelopment In the next few years.
The project is designed to add 800,000 square feet of exhibition space and 400,000 square feet of breakout space, as well as an additional 100,000 square feet of ballroom. Construction is expected to be completed by the end of 2028. Once complete, the expanded convention center is expected to nearly double annual attendance and revenue.
The Sheraton Dallas relies heavily on conference and group demand, with approximately 60% of occupied nights coming from this type of business, according to an S&P Global Ratings presale report. The hotel has more than 230,000 square feet of meeting and convention space with five dining options, a fitness center, rooftop swimming pool, business center, and other amenities. The largest ballroom can accommodate 5,000 people.
The convention hotel has a management agreement with Marriott that expires on December 31, 2038. For the trailing 12 months through February, the hotel's revenue per available room (RevPAR) was $89.20, the report said. Prior to the 2019 coronavirus disease (COVID-19) pandemic, the hotel's RevPAR was $78.69.
Since the tenants purchased the hotel in 2017, the partnership has invested more than $40 million in hotel room upgrades, lobby renovations, extensive meeting space upgrades and other updates.
According to the report, the hotel is attracting demand from nearby companies including Accenture, Deloitte, KPMG, PricewaterhouseCoopers and Santander Group.
Sheraton Dallas also has agreements with Southwest Airlines, Qantas Airways and Alaska Airlines, which will account for 10.3% of its 2023 room revenue, totaling $6.3 million. These three contracts were renewed this year, and next year's contract is in the proposal stage.
