NEW YORK CITY — NorthStar Realty Finance Corp. (NYSE: NRF), a commercial real estate investment and management firm, has originated a $255 million loan secured by a leasehold mortgage in the Milford Plaza hotel. The recently renovated 1,331-room hotel is located in Times Square, within walking distance to the Broadway theater district.
NorthStar originated $166 million of the loan, while NorthStar Real Estate Income Trust Inc. (NorthStar Income), one of NorthStar’s sponsored, non-traded REITs, originated the remaining $89 million. The $255 million loan was financed with $130 million from credit facilities with Deutsche Bank AG.
As part of the loan agreement, NorthStar and NorthStar Income will hold a 35 percent ownership interest in the hotel and its retail component on a pro-rata basis. NorthStar intends to securitize an interest in the senior portion of the $255 million loan and expects to earn an initial yield of 12.5 percent on its invested equity, which currently totals $81 million.
“This transaction exemplifies our ability to offer highly specialized, complete capital solutions on transactions with significant size and complexity by leveraging our relationships, sophisticated investment team and capital markets expertise,” says David Hamamoto, chairman and CEO of NorthStar Realty Finance Corp. “This loan provides the sponsors a creative financing solution, while also providing us an attractive current return that could be further enhanced in a securitization and potential upside through an ownership interest in a historic hotel located in one of the best hotel submarkets in the world.”
The current sponsor is a joint venture between Highgate Hotels, a hotel owner and operator, and Rockpoint Group, a real estate private equity firm. The joint venture will retain the remaining 65 percent ownership interest in the hotel and retail portion. Highgate Hotels currently manages more than 8,500 hotel rooms in New York City.
According to Jones Lang LaSalle, New York City was the most active hotel investment market globally in 2012. The Chicago-based commercial real estate brokerage and management firm expects the city to remain the most globally active market throughout 2013 as well, with the investment volume projected to dip between $2.3 billion and $2.4 billion for the year, compared to $2.7 billion in 2012. Jones Lang LaSalle published its forecast in its Hotel Intelligence: New York February 2013 report.
NorthStar’s stock price closed Tuesday at $9.97 per share, up from $5.60 per share a year ago.
— John Nelson