Debt is selective again

Debt is splitting commercial real estate into two markets: one San Francisco office tower just went to a lender in foreclosure, while a Seattle hotel landed a new $24 million loan. (crenews.com 1) (crenews.com 2) Lone Star Funds took control of 600 California Street after a foreclosure auction last week drew no outside bids for the 359,883-square-foot office building in San Francisco’s Financial District. Lone Star had bought the property’s $240 million commercial mortgage-backed securities debt in February for $130.6 million. (crenews.com) (lonestarfunds.com) The 20-story tower was once valued at about $320 million, according to reports on the auction, and the failed sale left the lender in position to convert debt into ownership. Lone Star declined to comment to The Real Deal after taking the asset. (therealdeal.com) (finance.yahoo.com) In Seattle, Prime Finance provided up to $24 million of mortgage financing for the 167-room Cedarbrook Lodge, a hotel near Seattle-Tacoma International Airport. Sonnenblick-Eichner arranged the floating-rate loan, which can run as long as five years and replaces a $27 million mortgage that was nearing maturity. (crenews.com) (hotel-online.com) That Seattle refinancing came from a private real estate debt fund and was marketed to multiple lenders, according to Sonnenblick-Eichner principal Elliot Eichner. He said the borrower chose private capital for execution certainty and more flexible loan terms. (hotelmanagement.net) (connectcre.com) The contrast is showing up in how lenders treat property types. Office owners in San Francisco are still confronting weak leasing demand and lower values, while hotels with operating history and sponsor support can still refinance, even with floating-rate debt. (therealdeal.com) (crenews.com) A commercial mortgage-backed securities loan, or CMBS loan, is debt that gets packaged into bonds and sold to investors; when a borrower defaults, the lender or note buyer can end up owning the building instead. That is what happened at 600 California after Lone Star bought the debt first and the property second through foreclosure. (crenews.com) (lonestarfunds.com) Floating-rate debt works differently: the interest cost moves with market benchmarks, which can make it easier to structure a refinance when lenders do not want to lock in long-term pricing. Cedarbrook’s new loan was also non-recourse, meaning the lender’s main claim is against the hotel rather than the owner’s broader balance sheet. (hotel-online.com) (hotelmanagement.net) Wright Hotels has owned Cedarbrook Lodge since 2009, and the property sits on seven acres of restored wetlands less than two miles from the airport. Lone Star now controls a Class A San Francisco office tower it first approached as a discounted debt trade. (crenews.com) (lonestarfunds.com) The same credit market produced both outcomes in the same week: ownership by foreclosure for a downtown office building, and fresh financing for a hotel with enough lender demand to generate competing bids. (crenews.com) (hotelmanagement.net)