Foreclosure Hits Blackstone’s Club Quarters Boston Hotel Amid Struggle to Recover $273.7M Loan

Blackstone Group has lost the Club Quarters Boston hotel at 161 Devonshire St. through foreclosure. This 178-room hotel was part of a four-property portfolio backing a $273.7 million loan securitized through BX Mortgage Trust, 2017-CQHP.

The Portfolio and Debt Structure

The portfolio included three other Club Quarters hotels in Chicago, Philadelphia, and San Francisco. Blackstone acquired these properties from Masterworks Development for $410 million in 2016. Masterworks continued managing the hotels under long-term agreements even after selling them to Blackstone.

Financial Maneuvering by Masterworks

Masterworks acquired $61.3 million of mezzanine debt at a discount, positioning itself to potentially gain ownership of the properties. Despite the Boston foreclosure, Masterworks still manages the hotels and could acquire them from the CMBS trust.

Financing and Loan Details

Blackstone refinanced its purchase with loans from Cornerstone Real Estate Advisors and Bank of America. The senior securitized loan pays a coupon pegged to Libor plus 205.5 basis points, while the mezzanine loan pays a rate pegged to Libor plus 585 basis points. These loans matured in November 2019 but had extension options.

Impact of Covid-19

The Club Quarters hotels, like many others, were severely impacted by Covid-19 lockdowns and have not fully recovered. In 2022, they operated at a 62% occupancy rate, generating $12.37 million in cash flow. This is a stark contrast to 2019, when they had a 91% occupancy rate and generated $31.97 million.

Loan and Property Valuation Issues

Since June 2020, the CMBS loan has been with special servicer CWCapital Asset Management due to non-payment. Advances and fees have accumulated, increasing the total exposure to $257.72 million. The appraised value of the collateral properties has dropped from $422.5 million in 2017 to $321.6 million as of February.

Efforts to Secure Remaining Properties

CWCapital is working to take title to the remaining three hotels. Blackstone was reportedly considering a deed-in-lieu for the Philadelphia property last year.

Ratings and Bond Classes

Despite issues, the senior bond classes of the BX 2017-CQHP deal still hold high ratings. Morningstar DBRS maintains a AAA rating for the $100.7 million class A, while Moody’s has downgraded all bond classes, including the senior class, which now holds an Aa2 rating.