Pimco fund walks away from 20 hotels with US$240 million of debt

A JOINT venture tied to a Pacific Investment Management (Pimco) fund surrendered a portfolio of 20 hotels with a US$240 million mortgage.

The properties, located in cities including San Antonio and Carmel, Indiana, were forfeited in a deal that closed in September, according to commentary filed this week by the loan’s servicer. The Pimco portfolio, valued at US$326 million when the debt was originated in 2017, was cut 16 per cent to US$272.8 million in a December appraisal.

Pimco declined to comment.

Commercial property owners are confronting much higher borrowing costs that are weighing on valuations. Wall Street investors including Blackstone and Brookfield Asset Management have defaulted on money-losing properties rather than continue to pay the debt on them.

The hotels were owned by a 10-year-old Pimco real estate fund that had a 99 per cent stake in a joint venture with a limited liability company linked to hotel operator Steven Angel, according to loan documents. Angel’s Fulcrum Hospitality manages more than US$6 billion in assets, according to the company’s website. Angel did not immediately respond to a message seeking comment.

For hotels, rising operating and capital improvement costs have cut into income. Ashford Hospitality Trust said in July that it would likely return 19 hotels to lenders, while Park Hotels & Resorts stopped making payments on two San Francisco properties.

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Pimco defaulted on a portfolio of office buildings with US$1.7 billion of debt earlier this year but continues to negotiate with lenders “as to the best path forward to maximise recovery”, according to a commentary on the commercial mortgage-backed security.

Pimco has also been raising money for a new commercial real estate debt fund that seeks to take advantage of market distress as US$2 trillion of existing commercial real estate loans are set to mature within five years, according to a presentation to the Pennsylvania Public School Employees’ Retirement System.

The Pimco Commercial Real Estate Debt Fund II closed to new investors in August after raising US$3 billion in commitments, according to a source with knowledge of the fund’s closing, who asked not to be identified citing private information. BLOOMBERG