Austin’s biggest hotel scores $430M CMBS loan

Fairmont Austin refinances existing debt, plans renovations

Fairmont Austin Hotel Secures $430M CMBS Loan
Fairmont Austin at 101 Red River Street with Manchester Texas Financial Group's Douglas W. Manchester (Manchester Texas Financial Group, Fairmont Austin)

Austin’s biggest hotel scored a Texas-sized loan. 

Fairmont Austin at 101 Red River Street received a $430 million CMBS loan, according to Morningstar. The loan comes to $410,000 per key. As part of the deal, the hotel’s owner, Manchester Financial Group, will contribute $50.3 million in equity.

The funds, originated by Goldman Sachs, will refinance about $302 million in existing CMBS mortgage debt, $125.4 million of mezzanine debt and roughly $5 million in closing costs. Manchester will pay $47 million to buy out Fortress’ membership interest in the property. 

The 1,048-key hotel opened in 2018 and draws from the neighboring Austin Convention Center. The two connect by a skybridge, and convention visitors accounted for nearly 10 percent of room nights last year. However, the convention center will close in April for four years of renovations. 

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As part of the financing deal, Manchester will also purchase a rate buydown to get debt service coverage ratio to 1.22. A property with a DSCR of 1 pulls in just enough money to cover debt payments, and many lenders will require at least a 1.2 ratio.

Before the pandemic, the Fairmont averaged 74 percent occupancy and revenue per available room of $192. As of the end of February, it was 72 percent occupied and reported $206 in RevPAR.  

Manchester plans $21.3 million in renovations to rooms, banquet spaces and dining outfits at the hotel. The firm was founded in 1970 and is based in San Diego. The Fairmont was its first play in Texas. 

The hotel is facing an influx of competition. Some 1,900 rooms will come online this year, with 800 of them slated for the central business district. After hovering near 70 percent for two years, Austin’s hotel occupancy rate will fall to 63 percent this year, according to a report from Marcus and Millichap. RevPAR is also expected to fall. 

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