Market Insights

Marriot-Starwood: A Debt Side Story

Who are the winners and losers in the Marriott-Starwood Hotel deal?

Marriott’s recent $12.2 billion acquisition of Starwood Hotels will create the world’s largest hotel company and is hoped to be a big win for Marriott.

However, where there are winners, there may also be losers… Leading us to wonder: which financial institutions stand to win or lose from this consolidation?

To answer that, we took a sampling of over 2,000 loans issued over the past decade for Marriott and Starwood hotels across the country, totaling just under $65 billion in debt. Our analysts took a look to see which lenders have been behind the deals and, of those, which will benefit the most from the merger and which are the most likely to lose out.

Going with the odds that those borrowers that have an existing relationship with each lender are likely to return to the same lenders, here’s what we’ve uncovered:

The Winners

Wells Fargo and Credit Suisse are looking like the two biggest winners in this deal.

Of the sampling we took, Wells Fargo looks set to benefit most. Wells Fargo (along with Wachovia, before it was bought out by Wells) issued more loans and a much larger proportion of the dollar amount – $5.77 billion, or 11 percent – than the lender standing just behind it in line: Credit Suisse and its subsidiary Column Financial.

Whereas Wells was a top lender to both Starwood and Marriott, Credit Suisse/ Column – which issued $1.96 billion in Marriott’s loans, or 4 percent – was more loyal to Marriott in the sense that it issued a far lower proportion of loan dollars to Starwood. Whether or not that will ultimately get it more business with the bulked-up Marriott remains to be seen.

More than 40 percent of the Credit Suisse/ Column lending went toward a single hotel, with $815 million going toward the Courtyard Boston Downtown on 275 Tremont St. in March. The 315-room hotel, built in 1924 and renovated in 2010, is owned by the real estate investment trust Ashford Hospitality Trust, which is involved in direct hotel investment as well as hotel financing.

As for the Wells/Wachovia lending, one factor in its diversified lending to both hoteliers is simply that until 2008 Wells Fargo and Wachovia were two separate entities. This can be seen in two loans that went to competing hotels on Chicago’s North Michigan Avenue in 2006 – both of which mature in April of 2016.

In March of 2006, Wells Fargo issued a $140 million loan for the 752-room Westin Michigan Avenue Chicago hotel, a Starwood property built in 1963 and renovated in 2005. The hotel is located at 909 North Michigan Ave., part of Chicago’s Magnificent Mile, a downtown avenue packed with shops, restaurants and hotels. This year the loan, which has an interest rate of 5.75 percent, was assigned to a CMBS deal.

About a month after the Westin loan was issued and two years before Wachovia was bought out by Wells Fargo, Wachovia issued a $195 million loan for the Chicago Marriott Downtown Magnificent Mile hotel at 540 North Michigan Ave. in 2006. The 1,200-room hotel, which was built in 1978 and renovated in 2005, was assigned to a CMBS deal in May of this year and has an interest rate of 5.86 percent.

If Marriott will be retaining both hotels for the time being, presumably Wells Fargo will get a chance to swoop in and refinance both loans over the next few months.

As for the other leading lenders, Bank of America, Deutsche Bank and J.P. Morgan round out the top five lenders by dollar amount in our Marriott sampling.

The Losers

Banks that have put their eggs in the Starwood basket and may now lose out to competitors that have a preexisting relationship with Marriott include Citigroup. Citi is among the biggest lenders to Starwood – but not Marriott – and could get left behind when it’s time for Marriott hotels to refinance.

Citigroup issued 2 percent of our sampling of Starwood loans, amounting to $229.7 million, but just 0.1 percent of Marriott loans, or $43.5 million. It should be noted, however, that almost all of Citigroup’s lending to Starwood went toward a single hotel: the 803-room Westin Copley at 10 Huntington Ave., which is across from Boston’s Copley Square and was renovated in 2012, for which it issued a $225 million loan in July.

Barclays and Shanghai Commercial Bank were also favored by Starwood and could lose out on future Marriott loans. Barclays may have less to worry about: They issued more in absolute dollar figures to Marriott than to Starwood.

Likewise, though Wells Fargo, Deutsche Bank and J.P. Morgan are among the top Starwood lenders in our sampling, we don’t necessarily expect them to lose out in the merger, since they are also top Marriott lenders.

So there you have it: Among lenders, Wells Fargo and Credit Suisse are looking like the biggest winners of the Marriott-Starwood deal, while Citigroup, Barclays and Shanghai Commercial Bank seem to have favored the hotel chain that has just been acquired.

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