Hana Alternative sees near 8% IRR on $30 mn US hotel loan

Hana Alternative Assets Management Co. Ltd. has provided a senior loan of $30 million on InterContinental Houston – Medical Center, in a five-year investment that is expected to return a net 7.81% before currency hedging, according to a Hana source.

The senior note B is part of a $157 million financing for the 354-room hotel which opened in March this year, and carries a coupon of one-month US LIBOR plus 5.8%.

It was first reported by the Financial News, a Korean news outlet, last week and confirmed by the Hana source.

After currency hedging, the expected internal rate of return could slip from the 7.81% given that South Korean investors need to pay a premium in dollar/won swap trade because of the higher US interest rates than the Korean base rate.

The guaranteed loan was sold down to Hana Capital Co. Ltd., Shinhan Capital Co. Ltd. and other institutions through a vehicle with a term of five and a half years.

The $157 million financing package for InterContinental Houston consists of $72 million senior note A; $30 million Senior note B; $15 million mezzanine loan; and an disclosed sum of equity.

No further details on the financing structure were immediately available.

The 21-story hotel is located next to the Texas Medical Center, one of Houston’s top hotel submarkets, along with Downtown and Galleria.

Houston’s hotel industry is grappling with a supply glut and lowered occupancy as a result of an extended period of lower oil prices, but the growing healthcare sector is propping up the city’s economy.

For InterContinental Houston, medical services and healthcare companies are expected to account for nearly 90% of room occupancy.

The hotel, with a gross floor area of 37,950 square meters, is owned by US developer Medistar Corporation and managed by IHG, a British hospitality company.