Blackstone sponsors $1.7B securitization of Great Wolf resorts

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Blackstone Real Estate Partners will sponsor a $1.7 billion bond sale secured by a commercial mortgage loan that financed its newly acquired controlling interests in Great Wolf Lodge waterpark entertainment resort properties.

Via transaction dubbed Great Wolf Trust 2019-WOLF, Blackstone REP will market nine classes of notes backed by the current estimated $168 million annual income stream from 17 Great Wolf Resorts Inc. properties of family entertainment indoor waterparks and lodging facilities across the country.

Blackstone REP, an affiliate of Blackstone Group, used proceeds from the $1.7 billion loan to pay off Great Wolf’s existing securitized debt and acquire a 65% stake in the portfolio of the properties from prior majority owner, private equity firm Centerbridge Partners. (Centerbridge retains a minority share in the company).

The interest-only, two-year mortgage loan (with three optional one-year renewals) was underwritten by JPMorgan, Deutsche Bank’s German American Capital Corp. and Bank of America, according to CMBS presale reports from Moody’s Investors Service and Kroll Bond Rating Agency.

Moody’s and Kroll assigned preliminary triple-A ratings to the largest tranche, the Class A notes totaling $442.1 million.

The notes will be paid from the income stream of the properties that include 14 wholly owned parks, a joint-venture interest in two others and one non-owned licensed property, according to the presale reports. The portfolio contains 6,752 keys (or rooms) in lodges with more than 1.3 million square feet of entertainment amenities including waterpark facilities. The resorts also feature about 230,000 square feet of meeting and conference center space.

Eleven of the 14 owned properties have established stabilized revenues.

The non-stabilized properties involve three parks built within the last two years in Minneapolis, Chicago and Atlanta, which each represent some upside to the portfolio’s net cash flow.

NCF has already generated a positive growth of about 23.5% in that time across all the wholly owned properties.

Great Wolf has four additional parks under construction or development in San Francisco, Phoenix, Baltimore and El Paso, Texas, none of which are being used as collateral for the loan but will be part of the overall ownership stake of the loan’s recapitalization.

As of October, Great Wolf lodges had an average occupancy of 79.4%, with an average daily rate of $254.53 revenue-per-available room (RevPAR) rate of $195.71. The average occupancy rate grew 11.4% since June 2017 and RevPAR has increased 5% in that period.

Great Wolf lodges drew approximately eight million guests in 2018, according to Hotel & Leisure Advisors.

The resorts were first built in 1997, designed as short-distance family destinations with indoor water parks and on-site lodging located within a two- to four-hour drive from major metropolitan areas.

The parks have an average age of 14 years, having been constructed between 1997 and 2016, but Moody’s notes all the parts “have been well maintained and periodically renovated."

As part of the takeover, Blackstone REP contributed $462 million in equity to recapitalize the parent Great Wolf Lodge Co., and took out $275 million in mezzanine debt that — combined with $228.9 million of retained equity from Centerbridge — repaid $1.5 billion of existing debt and retired $242.7 million of construction/balance sheet debt.

About $1 billion of the existing date was securitized in a 2017 CMBS transaction sponsored by Centerbridge that previously encumbered 12 of the 14 owned properties.

Blackstone REP, which has $157 billion in assets under management, is taking over Great Wolf at a time of increased competition from new indoor waterpark developments. According to Moody’s the largest property in the portfolio in Grapevine, Tex., is located near two competing resorts that are under construction and opening within the next two years in the Dallas-Fort Worth metropolitan area.

Blackstone and Centerbridge also plan to implement further revenue and cost-saving strategies to grow gross revenues and NCF — including on-site retail stores and the introduction of day passes to non-hotel guests at times of excess capacity.

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