Sheraton Dallas hotel getting $300M refinance loan

But ratings agency says the hotel may be too reliant on corporate meetings.

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One of downtown Dallas' most recognizable high-rise properties could soon get hundreds of millions of dollars in new financing.

A $270 million refinance loan plus an additional $30 million mezzanine loan are in the works for the 1,841-room Sheraton Dallas hotel, according to a presale report from S&P Global Ratings. S&P calls the hotel, which spans three towers on Olive Street, the largest in Texas.

The loan is part of a pool of debt that will be turned into commercial mortgage-backed securities sold to investors. The loan will be made through Goldman Sachs & Co. LLC and JP Morgan Securities LLC, the report says, with property owners Elliott Investment Management LP and San Francisco investment firm Chartres Lodging Group LLC listed as sponsors. KeyBank NA is the master servicer.

The deal is expected to close April 30. The floating-rate, interest-only loan would mature in two years, in April 2026. In the report, S&P analysts noted that interest-only loans bear higher refinance risk because of the higher loan balance at maturity.

The property has received about $99.6 million in capital improvements since 2015; most of that was spent between 2018 and 2020, according to S&P. The renovations included a new lobby and public space, meeting space improvements and the addition of new restaurants and bars.

The hotel encompasses a full city block. The central and south towers were built in 1959, the north tower was added in 1981 and the hotel's convention center was completed in 1998. The property's demand stems from downtown corporate offices, sports, entertainment, museums and the Kay Bailey Hutchison Convention Center, according to the report.

Like many hotels, the Sheraton did not fare well during the Covid-19 pandemic. The previous mortgage loan did not experience interest shortfalls or forbearance, per S&P, but it was modified during the pandemic to suspend furniture, fixture and equipment payments that were repaid by 2022.

Since then, performance has rebounded and surpassed pre-pandemic levels, reaching $37.7 million in net cash flow in 2023 — 54% above 2019.

S&P ties that performance to the renovations and the rebound in demand from meetings and groups, which made up about 60% of the hotel's room demand in 2023.

Airlines are also a big client for the Sheraton. Contracts with Southwest Airlines, Qantas Airways and Alaska Airlines made up 10% of its room revenue last year.

"Relative to hotels that have a more diverse mix of corporate, leisure and group demand, the property may be subject to greater volatility because corporate meetings may be postponed, shortened, or canceled in times of economic weakness," S&P analysts wrote.

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