Stonehill ups lending ante after strong 2014
05 MARCH 2015 7:28 AM
Executives at Stonehill Strategic Capital transacted more than $150 million in debt financing after launching their lending vehicles in October. For 2015, the bar has been raised to $500 million.
ATLANTA—Mat Crosswy had confidence Stonehill Strategic Capital would jump out of the gate upon its launch in 2014. He just didn’t realize how far down the track the lender actually would get.
“We spent most of 2014 building up the infrastructure, raising our debt fund, setting up the appropriate debt lines and facilities so that we can also provide a permanent financing line,” the company’s president said.
That left only a few months to market itself as a provider of permanent financing, bridge loans, mezzanine loans and preferred equity investments.
But when 2014 came to a close, Stonehill had completed 19 transactions totaling more than $150 million—exceeding executive’s expectations.
The bar is set even higher in 2015. Stonehill, an affiliate of investor and operator Peachtree Hotel Group, is poised to transact $500 million in debt and discounted note purchases. Of that total, $65 million has been accounted for thus far.
“We are hoping to build on that,” Crosswy said.
The timing is ripe
Crosswy recognizes Stonehill’s launch came at a fortuitous time in the hotel industry cycle.
“We definitely have a lot of optimism with where we are in the cycle. You continue to look at the supply pipeline. It’s still well below the historical run in terms of new supply.”
United States hotel supply during the 12 months through January was up 0.9% compared to a demand increase of 4.6%, according to data from STR, parent company of Hotel News Now. The 20-year compound average growth rate for supply was 1.7%.
“That’s still being coupled with what we’re seeing with record levels of occupancy. We’re really starting to see at the property level a lot of the revenue growth,” Crosswy added.
Occupancy was up 4.2% to 54.4% during January when compared to the same month in 2014, according to STR. During the 12-month period through January, occupancy was up 3.7% to 64.6%.
Crosswy said he expects to see further increases in rate, which in January was up 4.3% to $113.32. STR forecasts average daily rate to increase 5.2% during 2015 and 5% during 2016.
When asked if he fears a return to the frothy days of 2007, Crosswy pointed to the balanced fundamentals as an indicator of strong performance, at least in the short run.
“It goes back to supply and demand and how many rooms you were adding on an annual basis where you had a perfect storm of a lot of supply coming online and this global recession that lasted three or four years,” he said. “The difference is what we’ve seen in supply over the last five years. It’s been about 2% of total rooms primarily in the major markets.
“We’re really more active in the secondary markets, in tertiary markets,” Crosswy continued. “We stick to the limited, select-service product, which again can manage these downturns. If there is a downturn, we don’t expect it to be anywhere near as severe.”
The sweet spot
Premium-branded, select-service hotels in the $5-million to $20-million range represent Stonehill’s lending niche, Crosswy added.
Location is no issue, provided hotels are in the U.S. For instance, Stonehill in mid-February closed a deal in California the same week Crosswy flew to Albany, New York, to investigate another.
No matter where the asset or deal, Stonehill’s executives are willing to put more of their own skin into the game.
“With those hotels as our focus, our competitive advantage is that we’re able to offer a little bit more leverage than a traditional bank due to our knowledge of the real estate and the nuances of the deals,” he added.
Most of the $500-million target will flow through Stonehill’s floating-rate and fixed-rate lending vehicles.
“The floating rate is for more transactional, higher-leverage acquisitions, more secondary markets where we’ve seen a lot of opportunity,” Crosswy said. “Our fixed-rate program (10-year fixed in the low 4% range) is very competitive with the market.”