CBRE represented SRH Hospitality in structuring a long-term ground lease with a Florida-based hedge fund for the development of a 261-room Westin in Southlake.
The project is located at the intersection of Highway 114 and Carroll Avenue, across from the high-end shopping precinct, Southlake Town Square, and less than five miles northwest of Dallas Fort Worth International Airport. The six-story hotel will sit on 6.8 acres and feature a 25,000-square-foot conference center with an elegant ballroom, full-service restaurant and bar, and a rooftop lounge area.
Trinity Private Equity Group (TPEG) partnered with SRH Hospitality to develop the hotel, providing $17.9 million of preferred equity and mezzanine capital for the project. The City of Southlake is supporting the project, estimated to cost $45 million, with more than $5 million in incentives approved in 2018. The hotel is expected to open in 2020.
This transaction is one of many ground-sale leasebacks completed by CBRE over the last 48 months. The ground-sale leaseback structure is applicable across all four transaction types: acquisitions, dispositions, refinancing, and development, and offers several benefits to hoteliers seeking to restructure their capital stack and improve cash-on-cash yield.
“Initially, when CBRE approached us on the ground lease structure for our Westin hotel development project, we were hesitant but willing to listen. After better understanding the enhanced benefits to our capital stack as a result of lower equity needs, enhanced returns to our investor group and significantly better loan coverage, we engaged CBRE in structuring a long-term ground lease for our hotel project. Their team executed flawlessly, and we were extremely pleased with the outcome and results from their ground lease assignment,” said Jerry Crenshaw, co-founder and principal at Addison-based SRH Hospitality.
CBRE’s Nate Sahn, Robert Brennan and Pravin Boteju represented SRH Hospitality in the transaction.
“Many commercial real estate principals of hotels, office, retail, multifamily & industrial are realizing the benefits of this unique structure, which result in the output of significantly less equity combined with significantly higher cash on cash returns and lower overall risk than the traditional investment model,” said Robert Brennan, senior vice president at CBRE.
“Ground sale leasebacks, otherwise known as bifurcations, continue to gain traction in the marketplace as a very attractive capital stack structure. As their momentum continues to grow, we will see more acquirers, sellers, developers and owners seeking these financings, refinancings and recapitalizations,” said Nate Sahn, executive vice president at CBRE.