US investment banks including Bank of America Merrill Lynch are among those bidding on the refinancing of a portfolio of 86 Accor hotels. Owners London & Regional – along with US REIT IStar, Accor and Moor Park Capital Partners, which also hold stakes in the portfolio – are looking for about €500m of senior debt and a further €100m-150m of mezzanine debt, making it one of, if not the largest, refinancings in the market. Initial proposals for what has been dubbed Project New Day were due in early January. It is thought that one or two lenders could potentially take the entire €450m-500m senior lending ticket and then sell it down.
The portfolio was sold in June 2007 for €863m and comprises 86 hotels: 67 in Germany and 19 in the Netherlands. “Accor is a good name,” observed one banker. Yet the borrowers are “looking to refinance debt which is north of €650m”, said another lender. They are not willing to put a huge amount of equity in, he added. BAML’s forerunner, Merrill Lynch, originally financed the transaction in 2007, along with Société Générale. The deal was restructured in 2009, when the gross transaction size reduced to €766m, including €100m of equity. That debt is coming up for refinancing in June, otherwise it faces default. Société Générale and the German banks that are in the current financing are not extending the debt, but are “waiting to be repaid”, according to the lender.
“The difficulty generally is that it’s pan-European, so senior pricing would be in the 300bps region and the term is likely to be three years plus one, plus one,” he added. Eastdil Secured is running the ‘interactive’ financing process for Project New Day, under which it discusses offer levels with the borrowers and the borrowers make a decision in terms of which institution to go forward with. That is expected to happen in the next month. The borrowers are thought to have approached Deutsche Bank last year on this transaction – which remains part of the process – before appointing Eastdil.
Project New Day also requires €100m-150m of mezzanine debt. Pramerica is one of those that has expressed interest in supplying this. The original transaction was led by Moor Park Capital, which had a base case of selling the 12,000-room portfolio after five years in 2012 at an exit yield of 6%. This was to be after a €93m capital expenditure programme on 48 of the hotels to increase the revenue-linked rents.
Accor took new 12-year leases as part of the sale and leaseback at around 18% of annual revenues. Investment banks are expecting to be more active in European real estate this year. JPMorgan and BAML are said to be recruiting heads of real estate finance and both Goldman Sachs and Morgan Stanley intend to do more business. Deutsche Bank is already very active. “They think debt markets have taken a turn, because values have taken a turn,” said one debt structuring expert.