In a recent development, a joint venture associated with a Pacific Investment Management Co. (Pimco) fund has handed over a collection of 20 hotels linked to a $240 million mortgage.
These properties, situated in various cities, including San Antonio and Carmel, Indiana, were relinquished in a transaction that was finalized in September, as reported by the loan servicer this week. The Pimco portfolio, initially appraised at $326 million back in 2017 when the debt was initiated, saw a decrease of 16%, bringing it to a valuation of $272.8 million in a December appraisal.
Pimco has opted not to provide any comments on this matter.
In the current landscape, commercial property owners are grappling with significantly higher borrowing costs, which in turn are exerting pressure on property valuations. Notably, prominent Wall Street investors like Blackstone Inc. and Brookfield Asset Management Ltd. have opted to default on money-losing properties instead of continuing to service the debt.
The 20 hotels in question were owned by a Pimco real estate fund that has been in operation for a decade. This fund held a 99% stake in a joint venture with a limited liability company associated with hotel operator Steven Angel, according to loan documents. Angel’s Fulcrum Hospitality manages a substantial portfolio valued at over $6 billion in assets, as per the company’s website. Up to this point, Angel has not provided a response to inquiries seeking his comments on the situation.
The hotel industry is currently contending with escalating operational and capital improvement costs, which are impacting their revenue streams. In July, Ashford Hospitality Trust Inc. revealed its intention to hand back 19 hotels to lenders, while Park Hotels & Resorts Inc. ceased payments on two San Francisco properties.
This is not the first instance of financial turbulence for Pimco, as they defaulted on a portfolio of office buildings earlier this year, amounting to $1.7 billion in debt. However, negotiations with lenders are ongoing as they work toward maximizing the potential for recovery, as outlined in a commentary on the commercial mortgage-backed security.
Pimco is also actively raising capital for a new commercial real estate debt fund, with the goal of capitalizing on market opportunities emerging from the distress. This is particularly pertinent since around $2 trillion in existing commercial real estate loans are set to mature within the next five years, according to a presentation made to the Pennsylvania Public School Employees’ Retirement System.
The Pimco Commercial Real Estate Debt Fund II recently concluded its intake of new investors in August, after successfully raising commitments totaling $3 billion, according to an anonymous source with knowledge of the fund closure, who wished to remain unnamed due to the confidential nature of the information.
