Stonehill provides creative financing on three projects

ATLANTA—With the changing lending landscape, hospitality borrowers have had to find different ways to find the funds to make their projects happen. Stonehill, a direct hospitality lender, recently provided financing for three different projects across the country that aren’t traditional.

“The common theme in all three deals: When we do senior bridge work, we pivot with the market and find creative ways to fill out these capital stacks for these developers,” said Mathew Crosswy, principal, Stonehill. “We are constantly doing that and will continue to do that.”

Courtyard by Marriott and Tru by Hilton in Woodland, CA

American Hospitality Services Inc. wanted to retain as much ownership from an equity perspective for the construction of a Courtyard by Marriott and Tru by Hilton on the same campus in Woodland, CA.

“The company could bring about 20% of the equity to the table in order to complete both projects—otherwise it would have had to do one project at a time and couldn’t get the efficiencies from being able to scale two projects as opposed to one,” said Crosswy. “So, it was either do one project at 60% or both projects at 80%, and bring down their overall cost; we were able to provide a solution.”

The company provided American Hospitality Services with $8.5-million PACE financing in addition to $21.8 million in senior construction loans. PACE is a financing tool for energy and water efficiency projects. [For more on PACE financing, see p. 40.]

“California is a very PACE-friendly state; PACE loans are becoming more and more prevalent,” he said. “This is also where we are unique: We can provide the PACE loan, but also provide the senior construction loan. So it is bringing down the overall cost of the construction loan, while also providing a single source for the entire capital stack for the 60% senior construction loan and then the additional 20% that we brought in with PACE. Obviously, with us as the senior lender, we will consent to the PACE loan, which is the biggest challenge within the PACE space.”

The financing worked out well for Rohit Ranchhod, president/CEO, American Hospitality Services Inc. “Construction financing is challenging in today’s market,” he said. “While PACE has proven to be a cost-effective use of capital, it’s difficult to find senior lenders that will consent to the loan.”

Hilton Garden Inn and Home2 Suites by Hilton Houston Medical Center, TX

Stonehill provided $12.25 million in equity capital to American Liberty Hospitality for a combined 300-key Hilton Garden Inn and Home2 Suites near Houston Medical Center in Texas located in an opportunity zone.

“The sponsor was looking to take advantage of the tax incentives from investing within a qualified opportunity zone,” said Crosswy. “We provided joint-venture equity capital. We were about 80-90% of the equity within that deal. Our strategy within these opportunity zones is finding high-barrier markets with very strong demand drivers that tend to be more infill with some of the best-in-class sponsors. These are 10-year-long investments and this project has two great brands. You have the Houston Med Center, which is a great demand driver and then we have American Liberty Hospitality with the Massads, who we think are one of the best-in-class sponsors.”

Nick Massad III, VP of development, American Liberty Hospitality, has worked with Stonehill before. “Stonehill was the obvious choice for us based on our shared level of mutual trust and respect,” he said. “Combined with their desire for a win-win in every situation, we knew that Stonehill would provide creative solutions that would get our hotel over the finish line.”

AC By Marriott San Diego

Stonehill provided $4.85-million preferred equity investment for a $65-million AC by Marriott in San Diego’s Gas Lamp District for The Briad Group.

“We set very aggressive growth goals for our company, but were in need of additional equity to accomplish them,” said Brad Honigfeld, founder, chairman and co-CEO of The Briad Group. “Fortunately, Stonehill had faith in our development and operational track records and worked with us to provide preferred equity that solved our capital needs. The Stonehill team is extremely knowledgeable about providing gap financing that has allowed us to significantly increase our presence in the New York tri-state area by adding five new hotels to our portfolio, as well as an AC in the San Diego’s Gas Lamp District.”

The Briad Group had already received 65% financing for the project from another lender. “For this project, they wanted to add some additional leverage not in the form of mezz, and so we capitalized this by providing some additional financing to take them from 65% of the project cost to 80%, and then he had the 20% equity,” said Crosswy. “He controls 100% of his deals, so he likes to retain that control; this allowed him to do so simultaneously, while continuing to grow the rest of his portfolio and continue to pursue other development opportunities.” HB