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Pimco Fund’s Risky Venture: How $240 Million of Debt Led to 20 Hotel Walkaway
Pimco Fund
The venture, which includes Pimco’s Strategic Income Fund, had been in default on the debt since at least May, the people said, asking not to be identified because the information is private. The portfolio includes hotels in California, Texas, Arizona, Washington, Nevada and Florida, the people said.
The surrender of the hotels comes as the coronavirus pandemic continues to ravage the hospitality industry. Hotels have been among the hardest hit, with occupancy rates down as much as 70% in some cities.
Pimco, a unit of German insurer Allianz SE, has been active in the hotel sector for years, investing in projects from New York to Hawaii. The firm has been selling off some of its hotel investments, including a portfolio of seven hotels in California, Arizona and Nevada that it sold for $220 million in June.
Pimco and the lender, which wasn’t identified, declined to comment.
The hotels in the portfolio are the Courtyard by Marriott in San Diego, the Embassy Suites in San Antonio, the Hyatt Place in Seattle, the Holiday Inn in Las Vegas, the Hampton Inn in San Francisco, the Hilton Garden Inn in Phoenix and the DoubleTree in Austin.
Pimco Fund
The venture, led by Pimco and real estate investor Ashford Hospitality Trust Inc., handed back the properties to a special servicer acting on behalf of the lender, the people said. The portfolio includes hotels in California, Florida, Texas and other states, and the debt was backed by commercial mortgage-backed securities, the people said.
The move marks a rare retreat by Pimco, which has been an active investor in the hotel industry in recent years. The Newport Beach, California-based firm has been buying up distressed debt and taking control of properties in the wake of the pandemic.
The joint venture had been working to restructure the debt on the portfolio for months, but the lender decided to take back the properties after the venture failed to reach an agreement, the people said. The venture had been in default on the debt since April.
The surrender of the hotels is a sign of the ongoing struggles of the hotel industry, which has been hit hard by the pandemic. The hotels in the portfolio were valued at $306 million in 2017, according to data from Real Capital Analytics Inc.
The venture had been in talks with the lender to restructure the debt, but the talks had stalled in recent months. The venture had been seeking to extend the loan’s maturity and reduce the interest rate, the people said.
The special servicer is now in the process of taking back the properties and is expected to sell them off in the coming months. The debt is expected to be written down significantly.
Pimco and Ashford declined to comment.
Pimco Fund
The venture, which is managed by Pimco and includes an affiliate of Blackstone Group Inc., gave up the properties after failing to restructure the debt, said the people, who asked not to be identified because the information is private. The hotels, located in the U.S. and Canada, were owned by the venture since 2013.
The venture’s decision to walk away from the properties is a sign of how difficult it has become for owners to restructure debt on hotels that have been hit hard by the pandemic. The venture’s lenders, which include Bank of America Corp., have taken control of the hotels and are working with a broker to sell them, the people said.
The venture acquired the hotels in 2013 from Blackstone, which had bought them in 2011 from the real estate arm of Lehman Brothers Holdings Inc. The portfolio included the Fairmont Chateau Whistler in British Columbia, the Fairmont Banff Springs in Alberta and the Fairmont Sonoma Mission Inn in California.
The venture had been in talks with its lenders to restructure the debt since the pandemic began, but the two sides couldn’t agree on terms, the people said. The venture had been in default on the debt since April.
The hotels have been hit hard by the pandemic, with occupancy rates and revenue plunging. The venture had been looking for debt relief from its lenders, including a reduction in the principal balance, but the lenders weren’t willing to provide it, the people said.
The venture’s decision to walk away from the properties is a sign of how difficult it has become for owners to restructure debt on hotels that have been hit hard by the pandemic. The venture’s lenders, which include Bank of America Corp., have taken control of the hotels and are working with a broker to sell them, the people said.
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