The Real Deal Miami

Sheraton Florida defaults lead to Fitch negative ratings watch

By David Jones | July 18, 2008 04:35PM

 
Fitch Ratings said that it put about $13.5 million in notes issued by Gramercy Capital Corp. on a negative ratings watch following the bankruptcy of CF Hospitality Inc., which previously operated the Sheraton Hotel Miami and Sheraton Hotel Orlando.

Fitch said the two hotels cross defaulted on two loans representing 6.3 percent of a $1.1 billion collateralized debt obligation issued by Gramercy and are 60 days delinquent. CF Hospitality cross defaulted on both loans in January, due to a violation of its franchise agreement and filed for Chapter 11 bankruptcy protection in May, the ratings agency said.

The revolving commercial real estate collaterized debt obligation, called Gramercy Real Estate 2007-1, closed in August 2007. As of June, the CDO had invested 68 percent of its holdings in CMBS-backed bonds that are rated ‘AAA,’ as well as 11 commercial real estate loans. Fitch said that its $13.75 million in Class J notes, which include the Orlando and Miami hotels, continue to be rated at ‘BB-‘ and Fitch affirmed the ratings of all other notes in the CDO.

About half of the loans are backed by office buildings, while hotels comprise another 37 percent of the pool. About half of the commercial real estate loans are backed by New York properties, Fitch said.

Fitch said the Miami property is no longer operating as a Sheraton and the Orlando hotel would lose the Sheraton affiliation as well. Gramercy Capital expects to resolve the delinquency, according to Fitch, through an agreement that may include re-branding the hotels and upgrading the facilities.

The Orlando Sentinel reported last month that hotel owner George Zaczac was negotiating with Doubletree to take over the Orlando property and that his companies owe Gramercy Investment Trust, a subsidiary of Gramercy Capital, about $93 million.

Officials at CF Hospitality, based in Orlando, were not immediately available for comment.

Rick Matthews, spokesman for Gramercy Capital, said the company would not comment. Officials at Starwood Hotels and Resorts, Sheraton’s parent company, were not immediately available for comment.

New York-based Gramercy is a real estate investment trust that is managed by GKK Manager. GKK’s majority owner is SL Green Realty Corp.