Despite challenging financing conditions across European property markets, US manager Blackstone has completed one of the most significant refinancing deals of the year so far, sourcing €680 million of debt for a portfolio of 15 Spanish hotels.
The five-year deal comprises €370 million of senior debt and a €310 million mezzanine loan. The senior portion of the refinancing was underwritten by US bank Morgan Stanley and French lender Credit Agricole CIB. Morgan Stanley underwrote two-thirds of the senior loan, with CACIB underwriting the remainder. Austrian bank BAWAG participated in the loan at origination, buying a significant syndicated portion of the facility.
The €310 million mezzanine element of the refinancing is understood to have been provided by the European debt business of real estate manager LaSalle Investment Management. All parties declined to comment.
Blackstone began its search for fresh financing during 2022, to replace acquisition debt provided by Swiss bank Credit Suisse, now part of UBS, and US lender Citi in 2017, which was due to mature this year. The manager initially sought around €500 million of senior debt, and mezzanine for the remainder of the total volume. However, according to a source close to the deal, the firm encountered demand to provide a higher proportion of mezzanine debt, at pricing which reflected a blend of senior and mezzanine margins.
In total, the refinancing package, which was structured with a term of three years plus two one-year extension options, represents a sub-60 percent loan-to-value across the portfolio of mainly coastal hotels. On top of the €680 million, the lenders have collectively made available an element of capital expenditure funding, understood to represent less than 5 percent of the overall lending volume.
The transaction represents a vote of confidence from lenders in Europe’s high-end hospitality sector and demonstrates liquidity for big-name sponsors such as Blackstone for property types deemed to be in demand from real estate investors and end-users. According to a report by adviser Christie & Co, investment in Spanish hotels reached a volume of €3.2 billion in 2022, making it the third strongest year on record for the sector, behind 2017 and 2018.
The portfolio which Blackstone refinanced was one of its first purchases in the Spanish hospitality market. In October 2017, it bought hotel platform Hotel Investment Partners from Spanish banking group Banco Sabadell for around €630.7 million. The deal, which was done through its Blackstone Real Estate Partners Europe V fund, provided the firm with 14 high-end hotels containing 3,700 rooms located the Spanish mainland Spain and islands.
It has since added a fifteenth hotel to the portfolio. The portfolio’s assets include the Ritz Carlton Abama hotel, on the island of Tenerife.
Since its initial foray into the Spanish hospitality market, Blackstone has become the largest owner in the sector. According to a 2019 article in the Spanish newspaper La Vanguardia, Blackstone had invested €3.5 billion in the Spanish hotel sector by that point. In 2018, it increased its presence in the market when it bought listed property company Hispania Activos for around €2 billion, which the newspaper said gave it control of another 45 hotels.
In a statement, a Blackstone spokesperson said: “Our hotel investments in Southern Europe continue to perform well as fundamentals remain strong.”
While prime hotels are in demand and are attracting the attention of lenders in deals such as Blackstone’s, overall refinancing conditions across European sectors have been impacted by market uncertainty. According to manager AEW Europe, falling property values and lower interest coverage ratios mean lenders are providing lower leverage than in the first half of 2022. The Paris-based manager predicts a €51 billion debt funding gap across the UK, France and Germany during the 2023-25 period.