Colorado Real Estate Journal - April 20, 2016
Eric Tupler was putting on the Ritz. Putting a loan on the RitzCarlton Denver, that is. Tupler, a senior managing director in HFF’s Denver office, was part of the Holliday Fenoglio Fowler LP team that earlier this month arranged $55.1 million in refinancing for the 202-room Ritz-Carlton on a half-acre site at 1881 Curtis St. The HFF team also included Dan Peek out of HFF’s hotel group in New York and managing director John Bourret in Dallas. HFF worked on behalf of the owner of the Ritz-Carlton, Chicago-based Pearlmark Real Estate Partners. Tupler and his team placed the floating-rate loan with the Canadian Imperial Bank of Commerce. The CIBC loan replaces a $51 million refinancing that Tupler arranged for Pearlmark about three years ago. There was a great deal of interest from lenders to refinance the debt on the Ritz-Carlton, according to Tupler. “When we went out to the market with it, we received interest from both foreign and domestic banks, as well as from life insurance companies,” Tupler said. Tupler received offers from other Canadian banks, as well as from two European banks, he said. A number of the lenders came to Denver to tour the Ritz-Carlton and take the pulse of Denver. “They all went away impressed,” Tupler said. CIBC found a lot to like about the deal and the overall Denver economy, he said. “The interest level, first, was driven by the brand name of Ritz-Carlton,” Tupler said. “Along with that, was their perspective on the quality of the asset,” he said. The Ritz-Carlton underwent $9.3 million in capital improvements between 2013 and 2015. “The Four Seasons and the Ritz-Carlton are probably the nicest hotels in Denver today,” Tupler said. One topic, however, was the hotel building boom underway in Denver, as well as the potential impact of the Gaylord convention center and hotel planned in Aurora. “That certainly was a conversation we had with every lender,” Tupler said. The Gaylord, alone, will have more than 1,500 rooms. However, HFF’s analysis showed that existing hotels such as the Ritz-Carlton should do just fine, despite the increase in supply. Rather than just look at the number of rooms coming, he said they dug deeper into occupancy and room rates. “RevPAR is very strong,” Tupler said. “Both room rates and occupancy rates have been much higher than historical levels,” which in fact, are the main driving forces in all of the hotels being built or planned in downtown Denver, as well as in neighborhoods from Cherry Creek to West Highland. “A lot of these hotels won’t be open for another three years, so there is quite a bit of runway for existing hotels before the new ones come on line,” Tupler said. Hotels, he said, are unique as far as asset class. “The funny thing about a hotel is that they are most effective economically when they have occupancy rates of about 75 percent,” Tupler said. “That is because every time someone leaves a room, there is a cost associated to prepare it for the next guest,” he said. It may be counterintuitive, but the goal is not to operate a hotel that is fully occupied, he said. “With every other asset class, whether it is an office, retail or industrial, your goal is to have it 100 percent occupied,” Tupler said. “One-hundred percent occupancy is not your goal with a hotel,” he said. “There is more cash flow to the bottom line, when hotels have some vacancy,” Tupler added. CIBC is no stranger to Denver. A couple of years ago, for example, Tupler and his team arranged a loan through CIBC for Stanford Place II in the Denver Tech Center “I believe that was about a $40 million loan,” Tupler said. He said foreign banks' interest in Denver is a sign that Denver is increasingly being seen as a major destination city, he said. “It wasn’t that long ago that most foreign banks focused most of their energy in major cities on either coast, and Chicago,” Tupler said. “Everyone was really impressed about the strength and diversity of Denver’s economy,” Tupler said. The hotel opened in 2008, just as the Great Recession was about to ravage the entire nation. Pearlmark acquired it when it was a distressed property during the Great Recession. The hotel features The RitzCarlton Club Level with dedicated concierge and continuous food service throughout the day as well as Elway’s Restaurant. Elway’s is a six-time winner of Wine Spectator’s Award of Excellence. The Ritz-Carlton Spa is rated four stars by Forbes. The spa is adjacent to recently renovated fitness center. Guests also have access to the adjacent TruFit Athletic club with lap pool, Olympic weights and an indoor climbing wall. The hotel also includes 12,383 square feet of meeting and event space.