LOS ANGELES, Calif.–Commercial real estate investment banking firm George Smith Partners arranged $50 million in construction financing for the redevelopment of a 258,000 square-foot, 13-story office tower. The property will be converted into a 129-key Hyatt House and a 272-key Hyatt Place Hotel adjacent to the Los Angeles International Airport (LAX). The senior construction financing, on behalf of 5959 LLC, an affiliate of California Real Estate Regional Center, was arranged by George Smith Partners’ Vice President Zachary Streit.
“There is growing demand in the LAX submarket, and the current hotel stock is largely outdated,” Streit explains. “As a result, this new dual-branded offering, which will feature a trendy, mid-century urban design, will be of immediate interest to business and leisure travelers.”
The property is located on West Century Boulevard, one block away from LAX–the seventh busiest airport in the world. Streit notes that the timing is right for this redevelopment, citing a 2016 report from STR Global showing a 91.5 percent hotel occupancy rate and a 12.7 percent year-over-year increase in average daily rate.
“Even with demand high and supply low, identifying the right lender was challenging based on several factors,” Streit says. “It was crucial to find a lender who was comfortable with hotel construction financing at this point in the cycle, as well as a mezzanine tranche of EB-5 financing, and an unsubordinated ground lease. Additionally, it was critical that the transaction was structured to comply with High Volatility Commercial Real Estate (HVCRE) banking regulations.”
According to Streit, George Smith Partners was able to source a lender with both extensive experience in ground-up hospitality transactions, and a deep understanding of the supply-constrained LAX submarket.
“George Smith Partners was able to close the financing by demonstrating the sponsor’s attractive basis in the property, the submarket’s strong fundamentals, and the project’s incredible location,” Streit adds. “Our team also assisted in structuring the transaction to ensure HVCRE compliance.”
Sized to 50 percent of total project cost, the non-recourse, interest-only loan will float at a spread of 425 basis points over one-month LIBOR and carries two one-year extension options.
Planned for completion in 2019, the redeveloped Hyatt House and Hyatt Place Hotel will have a mid-century inspired urban design, rooms with 11.5-foot ceiling heights, and a host of amenities including a 24/7 fitness center, rooftop bar, pool, and a restaurant with unobstructed views spanning from Downtown Los Angeles to the Pacific Ocean.
“The dual-branded Hyatt Hotel is located in one of the strongest hotel markets in Los Angeles thanks to its proximity to LAX and central location to all major L.A. attractions. The city’s $14 billion LAX modernization, along with new public transportation, the under-construction $2.7 billion NFL Stadium, 2028 Olympics, proximity to Silicon Beach, and emergence as one of the great global cities will continue to stimulate market demand for years to come,” Steve Shpilsky, principal of 5959 LLC and co-founder of California Real Estate Regional Center, says. “The project successfully combines EB-5 mezzanine financing with developer equity and senior financing to complete the hotel, creating over 1,000 new jobs in Southern California.”