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Hotel properties are a mix of limited, full-service and resort properties with the vast majority of the assets carrying national flags. The RevPAR penetration across all loans was 116.4% at securitization. Notably, the percentage of major flags in the 2014 subset was 89.3% versus 70.2% in 2013. More than 61% of the loans have KLTVs >100%, however, the properties have long operating histories as the sponsors have owned the properties on average for nine years. On average, borrowers have spent more than $5 million in improvements. There are three loans that have excessive leverage, above 120% KTLV. None of these loans had an interest only component. One of the three loans had RevPAR penetration rates of 137.6% while the other two were not as strong but were in the 90.0% range. Risk on Top of Risk The last attribute we reviewed was in-place mezzanine debt (there were also two instances of subordinate debt at the time of securitization) another example of risk layering. There were only 19 loans with equity returned to borrowers that had mezzanine in-place at the time of securitization. The accumulation of additional debt put an upward pressure on leverage, pushing the weighted average all-in KLTV for loans with mezzanine debt to 119.2%. Likewise, weighted debt service was strained. These loans had weighted average all-in KDSCs at the time of securitization of 1.01x compared to the in-trust KDSC for the loans of 1.62x. These metrics were somewhat skewed by one loan, 375 Park, that had an in-trust and all-in KDSC of 3.42x and 0.78x, respectively. Excluding this loan, the loans with mezzanine debt would have declined in KDSC from an in-trust average of 1.37x to an all-in average of 1.09x. CRE Finance World Autumn 2014 50 Figure 6 Cashout Loans with Mezzanine Debt At first glance, the fact that nearly half of the Top 20 subset returned equity to the sponsors is concerning given that any market mechanism that adds leverage can quickly have a compounding effect. After closer inspection, we have concluded that at this point in the cycle, cashouts are largely being reserved for healthier loans. While returning equity to the borrower inherently shifts metrics, sponsors are simply taking advantage of property appreciation after years of strong operating performance. The ability to tap the CMBS market for that last dollar of proceeds has given the product appeal versus other debt options that may not offer cashouts as frequently. In the hands of the right borrower, it is not necessarily a negative. That said, our analysis revealed exceptions, and as always it is important to take into account the individual nuances that go into the funding of any given loan. Figure 7 Acronym Key Behind the Cashout


CREFW-Fall2014 10.15.14
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