KBRA Places All Ratings of HPLY 2019-HIT on Watch Developing

KBRA places all ratings of HPLY 2019-HIT, a single-borrower transaction, on Watch Developing. The Watch action is due to the loan’s impending final maturity date in November 2024.

The floating-rate, interest-only loan originally had a two-year term with three one-year extension options. The borrower used all three options and the loan will reach final maturity on the payment date in November. According to the servicer, the borrower intends to repay the loan in full on or before the maturity date.

The transaction collateral is a non-recourse, first-lien mortgage loan secured by the borrower’s interests in 42 hotels totaling about 4,860 keys. The underlying collateral properties are in 29 MSAs in 16 states. The loan has an outstanding principal balance of $459.8 million as of October 2024, after being paid down from $870.0 million at issuance following the release of 50 properties. The loan is paid current as of October.

The servicer reported a DSC of 0.90x for the trailing 12 months ended June 2024. KBRA’s analysis for this review resulted in a KNCF of $47.2 million, resulting in a DSC of 1.32x based on an interest rate of about 7.79% (calculated using the most recent interest rate cap strike price of 5.65% plus the loan margin of 2.14%).

The sponsor of the borrower, Hospitality Investors Trust, Inc. (HIT), filed for Chapter 11 bankruptcy protection in May 2021, and exited bankruptcy in July 2021. HIT is a publicly registered self-managed REIT which invests in lodging properties in the economy and midscale segments. The borrower executed a Forbearance, Modification and Extension Agreement in May 2021, the terms of which a) extended the loan maturity date to November 2022, and b) added Brookfield Strategic Real Estate Partners II (BSREP II) as “Additional Guarantor” for the loan. This was the second of two loan forbearances granted to the borrower. The first forbearance agreement was executed in June 2020 following the loan’s initial transfer to the special servicer in April 2020 for imminent monetary default and the borrower’s request for loan payment relief. BSREP II, which had been HIT’s preferred equity holder, took over HIT post-bankruptcy.

KBRA will continue to monitor the transaction and loan performance and will seek to resolve or update the Watch Developing status within 90 days.

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