Helped a Private Equity Firm Negotiate with a Borrower and Mezzanine Lender to Recover an Investment

When COVID-19 hit in the first quarter of 2020, the owner of a group of limited-service hotels closed several of its facilities due to significantly reduced occupancy. The borrower owed $300 million on the portfolio in a senior secured note as well as mezzanine debt. It defaulted and the loan was transferred to SitusAMC’s special servicing team. The borrower, a foreign entity, sought to get the loan reinstated and extended, and cure the default on the mezzanine debt, pledging to bring fresh funds to the U.S. The properties had an as-is appraised value of $357.5M at the time, or approximately $57 million in equity above the outstanding debt. That meant the mezzanine lender had equity to protect and would be willing to cooperate in a resolution. 

SitusAMC engaged both the mezzanine lender and borrower separately and worked for months to pull the deal together, pursuing multiple strategies simultaneously. SitusAMC issued term sheets with requirements for the borrower to perform, including earnest monies to show good faith. But after 10 months of negotiations, the borrower continually failed to respond and ultimately could not produce additional financing. In January 2021, the mezzanine lender foreclosed, becoming the borrower of record and bringing significant funds to the table. SitusAMC negotiated a modification and assumption of the note. The loan was reinstated, reserves were funded, and the maturity date was extended to February 2023. 

The note is now performing, the property is no longer encumbered by mezzanine debt, and SitusAMC’s client did not lose any money. The lender is in a very strong position to ensure the debt is paid in full, even in the event of a future default. This loan has now been returned to the master servicer, and the hotel portfolio is exceeding budget and operating at a profit.