Bankers could bail out luxe hotel, hurl new CMBS into markets
Call it a reverse bailout. Let’s just hope the party doesn’t crash like it’s 2008.
When bankers pack Miami Beach celebrity stomping ground The Fontainebleau next week for a bond-market conference, they’ll be mixing business and pleasure. Or so hopes owner Jeffrey Soffer, who reportedly is betting on attendees of the ABS East conference to pony up an $850 million mortgage as they run up hefty tabs at posh bars and restaurants at the 1,504-room resort.
Soffer, who shelled out a $1 billion for a massive renovation completed in November, needs the loan to buy out Dubai World’s 50% stake in the hotel and refinance debt and to refinance debt will be packaged into commercial mortgage-backed securities, Bloomberg reports, citing unnamed sources.
The market is ripe. Bond sales linked to hospitality loans have more than tripled since January to $7.7 billion, compared with $9.4 billion in 2007 before markets collapsed, according to Wells Fargo data.
But is the market really stronger and safer than it was before the financial crisis?
To prepare for an IPO next year, the Blackstone Group is planning to refinance Hilton Hotel Corp.'s $13.5 billion of debt. Lest we forget that the buyout behemoth failed to pull off a record CMBS issue tied to its 2007 buyout of Hilton. The second attempt includes a plan to sell about $3.5 billion in CMBS, which would be the largest issue since the financial crisis, but less than half of the $8.4 billion deal that Blackstone botched in 2008.
Circumstances are different this time. The lead manager of the 2008 deal was Bear Stearns, which was forced into a fire sale amid viciously volatile markets. What’s more is that underwriting standards had been lax at the time and issuance hit $228.6 billion in 2007, rocketing 150% from 2004.
“When things get bad in hotels they get really bad,” said Dan Fasulo, a managing director at Real Capital Analytics Inc., a New York-based property research firm. “A lot of lenders got burnt badly in the downturn. There is no question that CMBS lenders have been the most aggressive” since values started recovering, he said.
Hotels are hit hard and fast in a recession, but they rebound just as quickly because rates can be adjusted on a daily basis to meet revived demand.
“Although hotel property performance has been relatively strong over the past few years, year-over-year revpar has begun to moderate, which makes us wonder if borrowers are trying to refinance their loans and take out equity while valuations are still robust,” Bank of America Corp. debt analysts led by Alan Todd said in a report last month.
At the very least, Soffer will shore up some capital thanks to expense accounts. A window table at Bleau Bar brings in $500 on a Thursday, and that’s before the tab.
Ernst & Young to Boost Ranks by 10,000 (eFC)
The Big Four accounting firm plans to recruit 6,300 students while making 4,300 experienced hires during the fiscal year, which began in July. That would be a 3% increase from 2013, when Ernst & Young added some 10,000 new employees – approximately 4,100 of whom were experienced hires.
Tourre Fights Fraud Verdict in SEC Case (Reuters)
Former Goldman Sachs vice president Fabrice Tourre has asked a federal judge to dismiss the U.S. Securities and Exchange Commission case against him or set a new trial. Tourre said his jury erred in finding him liable on six charges over the transaction, which the SEC said caused $1 billion of investor losses, because the evidence was inadequate or was never presented in court.
Wells Fargo to Pay Freddie Mac $869 Million (Bloomberg)
The largest U.S. home lender has agreed to an $869 million settlement with government-backed firm to resolve disputes over faulty loans. Wells Fargo flows Citigroup, which reached a $395 million deal with Freddie Mac last week and announced a $968 million settlement with Fannie Mae in July.
CFTC Operates With Skeleton Crew (FINAlernatives)
The Commodity Futures Trading Commission was operating with just 28 of 680 employees yesterday, as Congress remained unable or unwilling to pass a stopgap budget. The Securities and Exchange Commission is operating at full capacity, for at least "a few weeks."
CBOE Debuts Short-Term Volatility Gauge (Businessweek)
The owner of the biggest U.S. options market has introduced the CBOE S&P 500 Short-Term Volatility Index that tracks nine-day options on the Standard & Poor’s 500 Index. The CBOE also plans to expand its market leading Volatility Index, or VIX.
CFTC Enforcement Chief to Step Down (WSJ)
David Meister, enforcement chief of the Commodity Futures Trading Commission, plans to leave the agency this month. He will depart as the CFTC’s enforcement division grapples with major cases against former MF Global Holdings Chief Executive Jon Corzine and potential charges against J.P. Morgan Chase over "London whale" trading scandal.
Ex-Simple Alternatives Partner To Launch Socially-Responsible Fund (P&I)
Bruce MacDonald, who this week left his role as managing partner of Simple Alternatives, is launching a socially-responsible fund of hedge funds. Crayna Capital opened yesterday and plans to introduce a commingled mission-based product in the first quarter.
Buzz Around the Office
Government Shutdown is No Vacation (Buzz Feed)
Hope you’re not headed to Hawaii for an early fall getaway. The government shutdown could shut down your plans. From Oahu to Volcanoes National Park on the Big Island, hundreds of federal workers were being furloughed while park police were busy securing national parks.
List of the Day: How to Score a Four-Day Work Week
Here’s three simple ways to work your way to a long weekend, every week.
- Create a proposal that demonstrates that you will remain as productive as you are now, that you will complete assignments on time and why the employer won't even miss you on Friday.
- Ease into it. Ask to work a four-day week once a month and over time prove you can be just as efficient over fewer days.
- Be clear about the fifth day: whether you’re on call for anything that comes up, ready to report to the office for a major project or checked into a hotel without wifi.
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