In October 2018, RRA Companies (“RRA”) launched an offering for a secondary loan position in an 81-key Fairfield Inn & Suites hotel located in Peachtree City, Georgia. The second-position loan was part of the larger original senior loan placed in January 2018.
The business plan of the underlying property included capturing market share in Peachtree City, a town with extremely strong demographics and market fundamentals. The existing hotels in the market had outperformed national averages, partially due to the affluent population and proximity to Atlanta. Although the market was fairly competitive, the underlying property was the only Marriott brand and the first hotel built in the submarket since 2007.
The second-position offering assumed the extension options on the original loan would be exercised and called for making quarterly distributions to investors for approximately two years and two months. However, after sufficient stabilization, there would also be a possibility of the original loan being paid off earlier, either due to a refinancing or a sale.
Strong Underlying Asset Performance
At the time the deal was launched on the CrowdStreet Marketplace, the underlying asset was performing well and ahead of projections used to initially underwrite the original senior loan. As of July 2018, actual net operating income (NOI) for the asset outperformed budget by 10.8%, resulting in a higher current debt yield.
Commencing in February 2019 and continuing throughout the life of the investment, regular quarterly distributions were made to the second-position loan investors.
In late March 2020, the borrower paid off the original loan resulting in an exit for the second-position loan investors. Although RRA believed this was a very strong asset, given the challenging economic environment and uncertainty associated with the hospitality industry as a result of COVID-19, RRA was pleased for this realization to have occurred when it did.
Favorable submarket conditions and an advantageous location led to strong performance of the underlying asset and helped RRA deliver returns to second-position loan investors approximately in-line with the original offering.
*Net of the most onerous fees charged to clients of CrowdStreet Advisors, LLC, our registered investment advisor subsidiary; an investor’s actual returns on a realized investment may differ.
This report contains explanations of a series of events associated with the Fairfield Inn & Suites offering that resulted in an approximate 7.5% (net of most onerous fees) IRR to investors (including those from the CrowdStreet Marketplace). Certain aspects of the report such as dates of major events and the final outcome are easily verifiable while others, particularly underlying reasons behind the sponsor’s business plan execution, are not.
The report partially relies upon the sponsor’s explanations, the information contained within sponsor-produced quarterly reports, and conference calls. This analysis is not an assertion of independently verified facts but, rather, is for informational purposes only, to convey CrowdStreet’s understanding of what transpired.
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