A $22.4 million loan on the Fort Lauderdale Marriott North entered special servicing, according to data from Morningstar Credit, further evidence of South Florida commercial property distress.
The loan on the 315-key hotel at 6650 North Andrews Avenue was put into special servicing late last month due to a Dec. 1 maturity that looms, as the property’s net cash flow has dropped due to increased expenses, Morningstar Credit data shows. The building was completed in 1986 and renovated in 2008.
The debt isn’t distressed, as the hotel owner has been current on payments. But the special servicing status signifies the loan is being monitored for its upcoming maturity, especially in light of higher operating expenses.
The special servicing status comes as South Florida commercial real estate has increasingly felt the sting of higher interest rates, skyrocketing insurance costs, economic uncertainty and other headwinds. Stress has been especially pronounced in office properties, though some hospitality and multifamily properties also have experienced financial woes.
London-based L+R Hotels owns the 17-story hotel. It paid $48.5 million for it in 2019, according to property records. At the time, L+R assumed a $24.9 million loan on the hotel that the seller, Procaccianti Companies, had originally scored in 2014. The debt’s remaining balance is $22.4 million.
The loan has a fixed interest rate of nearly 4.6 percent, and is part of a commercial mortgage-backed securities debt pool. Although the fixed rate means L+R hasn’t experienced rate increases, a refinancing likely would come at a higher rate. Following the Federal Reserve’s 11 rate hikes last year and in 2022, most loan rates now are well over 5 percent.
Morningstar Credit’s report listed “imminent monetary default” as the reason the hotel’s debt was put into special servicing.
L+R didn’t return a request for comment.
The Fort Lauderdale Marriott’s revenue has been on an upward swing, but so have expenses, Morningstar data shows. The hotel’s revenue last year hit $16.1 million, up 23 percent from the loan’s 2014 underwriting, and 7.3 percent higher than in 2022. Last year’s expenses hit $13.3 million, marking a 26.7 percent increase from 2014, and a 10 percent increase from 2022.
As the increase in expenses has outpaced the rise in revenue collections, the hotel’s net cash flow has dropped. Last year’s cash flow was $2.2 million, down 16 percent from 2014 and 7.2 percent from 2022. It’s unclear why expenses increased, although skyrocketing insurance premiums have been eating up investors’ revenue across South Florida.
Other South Florida hotels in financial trouble include the Gabriel South Beach on Collins Avenue and Sixth Street in Miami Beach, and the Gabriel Downtown Miami at the Marquis luxury condo tower at 1100 Biscayne Boulevard in Miami. CGI Merchant Group owns both hotels, which are under UCC foreclosures. The foreclosure auction dates have been postponed multiple times, signifying that CGI and its lenders are working on a restructuring of the capital stack.