Dealmaker: Continental Partners Secures $54M for Rancho Mirage, Calif. Hotel

Continental Partners, Los Angeles, secured $54 million to refinance the Ritz-Carlton Rancho Mirage, a 244-room Rancho Mirage, Calif. hotel.

The property occupies 68900 Frank Sinatra Drive in Rancho Mirage.

Continental Partners President Mitch Paskover arranged the fixed-rate, non-recourse, interest-only financing. He noted that many lenders remain “somewhat conservative” about hotels and hesitate to advance higher-leverage loans.

“The hotel sector has demonstrated steady growth over the past several years, yet some lenders believe that the market is reaching its peak as occupancies stabilize and average daily rates moderate,” Paskover said. “That said, while some capital sources are tightening their underwriting standards, there is still strong lender appetite for well-located hotels with solid financials and high average daily rates.”

Paskover said the private real estate investor sponsor requested an interest-only, fixed-rate non-recourse loan to replace a maturing construction loan and buy out their existing partner in the deal.

“Despite the strength of this asset, many lenders were quoting a loan amount that did not meet the sponsor’s requirements,” Paskover said. “Most of the lenders were sizing loan amounts with debt yields between 10 percent and 11 percent based on the last 12 months of historical operating statements.”

The Ritz-Carlton resort represents one component of a large mixed-use project that was to be developed in two separate phases, Paskover noted. The first phase included renovating and converting an existing hotel into a luxury resort and adding 16 for-sale residences.

“Additionally, the borrower requested a loan that would exclude the existing 16 condos and the Phase II land parcel, which were secured by the original construction loan,” Paskover said. “The challenge was that most lenders were unable to release the existing condos and Phase II land from the existing collateral due to the homeowner’s association, which controls access to the hotel, condos and land.”

Paskover approached a number of lenders including banks, commercial mortgage-backed securities lenders and life insurance companies. His firm also completed a market survey to confirm the market’s occupancy and average daily rates for comparable properties in the area. He said this data allowed the lender to commit to a larger loan amount than originally requested.

“By demonstrating the strength of the asset, the market and the sponsor’s business plan, we were able to source a lender that would lower the debt yield below 9.5 percent, providing a loan amount that met the borrower’s objectives,” Paskover said. “We also successfully identified a lender that would release the existing condos and Phase II from the new loan.”