The Wall Street Journal reported this week that Eagle Hospitality Trust and Blackstone Group struck a deal to avoid foreclosure on 13 upscale U.S. hotels. Eagle owns the 13 properties, which include the Cincinnati Landmark Marriott, and Blackstone holds the debt.
Rather than proceed with foreclosure, Blackstone has agreed to accept an undisclosed amount as payment in full of the debt, and Eagle will be putting the properties up for sale. According to the Journal article, the payoff amount is less than the face amount of the debt but more than the price Blackstone paid for the loan earlier this year. Any proceeds of the sale in excess of that amount will go to pay Eagle’s other creditors and equity holders.
The hotel portfolio contains 3,538 rooms and includes eight Embassy Suites hotels, the Hilton Cincinnati Airport and the Chicago Marriott Southwest at Burr Ridge. The average room rate across the portfolio is $126 and occupancy is 75.4% on a trailing 12-month basis. Revenue per available room is up 7.1% year over year.
The value of the hotels has fallen considerably since AREA Property Partners purchased Eagle Hospitality in 2007. Because of this decline, Eagle was unable to refinance the $606 million mortgage, which came due on Sunday.
Blackstone, which purchased the debt at a discount last May from the Federal Reserve-controlled entity overseeing the assets of Bear Stearns, could have commenced foreclosure following the maturity of the loan. Instead, they elected to allow the borrower to sell the properties and pay off the loan at a discount.
Illinois and Ohio are both judicial foreclosure states, where the foreclosure process tends to average around 18 months. In judicial states in particular, Lenders will often work to find a compromise with borrowers, if possible, rather than resort to foreclosure, which is not only time consuming but can be costly as well.