DBRS Confirms All Classes of Fontainebleau Miami Beach Trust 2012-FBLU

DBRS has today confirmed all classes in Fontainebleau Miami Beach Trust 2012-FBLU as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)

The trend on all five classes is Stable.

The subject is a luxury convention hotel and beach resort in Miami Beach on a 15-acre beachfront parcel. Collateral for the loan consists of two hotel towers, over 100,000 sf of meeting space, several swimming pools and all of the food and beverage outlets at the resort. Not included as collateral are two condominium towers that generate income for the borrower, due to the units being managed by an affiliate of the borrower. All of the units in these towers are privately owned; however, the owners may opt into the hotel’s rental program. As of September 2012, the participation rate for units in the condominium towers was 84.6%, compared with 86.9% at February 2012 and 88.1% at January 2010.

Despite the slight dip in condominium participation, the property’s performance has remained healthy. A January 2013 STR report showed the property’s T-12 RevPAR has grown 7.1% over the T-12 January 2012 figure. The firm reported that the T-12 ADR has grown 7.4% over the same period. The property also continues to outperform its competitive set. The asset’s T-12 occupancy rate was 77.4% as of January 2013, compared to a competitive set occupancy rate of 70.6%. In addition, the T-12 ADR for the subject was $299.53, compared to a competitive set ADR of $230.15.

Two lawsuits involving borrowing members and individuals associated with them were known to have existed when DBRS first issued its ratings for this transaction. One involves litigation between the borrower and the condominium associations. The borrowing entities that hold ownership rights in each of the condominium towers are being pursued to remedy certain purported defects within the buildings, along with recovery of damages. Based on DBRS’s analysis at issuance, estimated expenses for one of these lawsuits were considered non-material. Regarding the second lawsuit, if the plaintiffs were successful, an ongoing drain to the net cash flow could arise. DBRS’s UW NCF incorporates this expense, with the result having no impact to the DBRS value. In the second litigation, employees of the affiliates of one of the borrower entities, Turnberry, have been accused of failing to disclose cost overruns at a Las Vegas casino-hotel development, while continuing to draw on the construction loan. The loan has been structured with a cash management agreement that results in all cash and credit card receivables being deposited into a lender-controlled clearing account. On no less than a daily basis, all funds in the clearing account are swept to the cash management account and used to pay all operating expenses and debt service. During a cash trap event period, excess cash flow will not be available to the borrower. In addition, DBRS considers the 50% ownership in the property by Istithmar, which is ultimately owned by Dubai World, one of the world’s largest holding companies, to be a moderating influence. These issues were known at issuance and DBRS has contacted the 17g-5 provider for an update on the status of the above litigations. To date, DBRS has not received any response.

The April 2013 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is CMBS Rating Methodology (January 2012), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

All classes are privately placed pursuant to Rule 144a.