Cerberus Capital Management LP is seeking as much as $1.8 billion in new debt on six resorts, including five in Hawaii, taking advantage of Wall Street’s growing appetite for commercial mortgages.
Cerberus is approaching banks for a loan to pay off debt taken out in 2006, according to three people familiar with the transaction. A new $1.4 billion mortgage would be packaged into securities, while the remainder is placed with other investors, said the people, who declined to be identified because the negotiations aren’t public.
The move marks the second attempt to refinance the debt on the so-called Kyo-ya portfolio in the commercial-mortgage bond market. A deal struck with Goldman Sachs Group Inc. (GS:US) last year never closed, leaving the private-equity firm led by Stephen Feinberg without funding when loans matured in July, a person familiar with the deal said.
The debt was extended until next year, according to Morningstar Inc. The Hawaii hotels are located in Maui and Oahu, including the Sheraton Waikiki and three other properties that account for 40 percent of the rooms at Waikiki Beach. The sixth hotel is in San Francisco.
John Dillard, a spokesman for Cerberus, and Michael DuVally of Goldman Sachs declined to comment.
Hotel demand in Hawaii in 2012 has been greater than anywhere else in the U.S., driven by international travelers coming to the islands. International air visitations rose about 17 percent this year through March, compared with a 4.8 percent boost from travelers from the U.S., according to data from Hawaii’s Department of Business, Economic Development & Tourism.
After struggling amid the global economic slump, cashflow from the Kyo-ya hotels has nearly doubled since 2009, Deutsche Bank AG analysts said in a research note today. The most recent appraisal values the properties at $1.8 billion, compared with $2.7 billion in 2006, according to the Deutsche Bank analysts led by Harris Trifon in New York.
Occupancy at the hotels had climbed to 86 percent for the 12 months ending Sept. 30, compared with 72 percent through Dec. 31, 2009, according to Morningstar.
Wall Street has arranged about $9.1 billion in commercial- mortgage bond deals this year. Issuance may climb to $45 billion in 2012, up from about $29 billion last year, according to Credit Suisse.
Demand for bonds backed by commercial mortgages is growing, with UBS AG selling $1.5 billion of collateralized debt obligations, or CDOs, linked to the debt last week at prices that “met or exceeded” expectations, Credit Suisse Group AG analysts said in a May 10 report. The offering followed the Federal Reserve Bank of New York’s record sale of similar securities last month.
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