A Chicago-based hotel company created in the middle of the coronavirus lockdown is looking for help to withstand the pandemic's brutal blow to the hospitality industry.
With travel all but sapped by widespread stay-AG亚洲国际游戏home orders and little clarity about when convention business will return, Watermark Lodging Trust is soliciting investors for a $200 million infusion to shore up its finances, according to industry newsletter Real Estate Alert.
The real estate investment trust, which was formed in April by a merger of two Carey Watermark Investors REITs, is pitching private-equity firms and other funds as it offers a preferred equity stake to share in some of its future gains, sources familiar with the offering said.
It's part of an untimely beginning for Watermark, whose portfolio of 32 hotels includes the 560-room Renaissance Chicago Downtown. But it's far from alone in hunting for so-called rescue capital to help shoulder the financial burden of operating hotels with little to no business. Hotel owners of all sizes are reeling from the "almost cataclysmic event" of COVID-19 shutdowns and many are looking for financial relief, said hotel developer Bob Habeeb, CEO of Chicago-based Maverick Hotels & Restaurants.
"There is widespread disruption in the hotel market right now, a lot of uncertainty," Habeeb said. "A lot of investors big and small are in the process of trying to develop a strategy to survive this storm."
Raising money for hotel operators is especially difficult with the future of conventions and trade shows unclear. The timing of such events returning and generating business for hotels in Chicago and other major markets depends on the development of effective COVID-19 treatments or a vaccine, which makes it tricky for hotel owners to forecast revenue and, therefore, how new investors should fairly value their properties.
Watermark this month sold a 247-room hotel it owned in Nashville for about $70 million to help generate liquidity, but it is still looking for help dealing with a $277 million mountain of debt that's coming due at the end of this year, according to a recent regulatory filing.
"If the company's lenders do not provide covenant relief or if the company is unable to repay, refinance or extend any such indebtedness, the lenders may declare events of default and seek to foreclose on the underlying hotels. We may also seek to give properties back to the lenders," Watermark disclosed in the filing. A company spokesman couldn't be reached.
Occupancy at downtown Chicago hotels that are still operating has been below 20 percent for almost three full months, according to hotel research firm STR. That has triggered loan issues for several downtown hotel owners, especially those whose mortgages have been packaged with other loans and sold off to commercial mortgage-backed securities investors. Renegotiating terms of such CMBS loans is typically harder to do than when a borrower is dealing only with a private lender.
The Palmer House Hilton, Hotel Felix and JW Marriott downtown are among the hotels that have missed one or more debt service payments on CMBS loans since April, according to Bloomberg loan data. All were recently transferred to special servicers, normally a red flag to investors that the borrower is in danger of defaulting on the loan.