WSJ: Blackstone, Square Mile to Buy Hotel Mortgages From FDIC

http://online.wsj.com/article/SB10001424052748704396504576205052943405080.html


By ELIOT BROWN And KRIS HUDSON
A venture of private-equity firms Blackstone Group LP and Square Mile Capital LLC has agreed to buy from the Federal Deposit Insurance Corp. a $385 million bundle of mortgages tied to 45 hotels, according to people familiar with the deal.
The group has agreed to pay about 80 cents on the dollar for the portfolio, people said. That is a relatively high price compared with deals involving distressed debt backed by hotels done earlier in the downturn. It speaks to rising optimism about the hotel industry by investors as the economy begins to recover.
The loans backed by the hotels, generally recently constructed, limited-service properties spread across the country, are a remnant of the failed Silverton bank in Georgia, which held the debt until mid-2009, when it was closed by the FDIC.
In May 2010, the FDIC sold a similar portfolio of hotel-backed mortgages that also sat on Silverton's balance sheet. Square Mile bought that portfolio as well, paying about 81 cents on the dollar. But the price in the current sale is considered higher, as the FDIC provided zero-interest financing to Square Mile on the first deal, a benefit that drives up prices.
The hotel sector was particularly hard hit by the economic downturn, and last fall, a peak 19.3% of lodging loans that were placed in commercial mortgage-backed securities were delinquent, according to loan research service Trepp LLC. But in recent months, real-estate investors have been betting on a turnaround in the sector and hotel owners are moving to put new capital into distressed properties that seemed hopeless a year ago. The delinquency rate for February stood at 14.6%.
For example, hedge fund Paulson & Co. and Winthrop Realty Trust are currently in bankruptcy court seeking to maintain control of a portfolio of five luxury resorts with a $1.5 billion debt load.
Another deal involves a Goldman Sachs Group Inc. fund that purchased a portfolio of 105 hotels throughout the U.S. in 2006. The fund paid about 93 cents on the dollar to buy $94 million in junior debt on the portfolio and also is seeking to rework its total $800 million in debt, which matures next month.
The Silverton portfolio is the third large portfolio the FDIC has sold this year. The first two were won by a team of Colony Capital and the New York-based Cogsville Group. Unlike those deals, in which the Colony team bought a stake of the portfolios from the agency, the FDIC is selling its entire ownership in the Silverton deal.