According to Morningstar, a special service was set up at a hotel just blocks from Apple’s old headquarters in Cupertino after it missed a $30 million loan repayment deadline this month.
The 123-room Aloft, a Marriott brand that targets younger, tech-savvy customers with amenities like a robot butler that delivers room service items, generated nearly a third of its revenue from corporate contracts with Apple when the loan was taken out a decade ago, according to Morningstar analyst David Putro. The hotel opened in 2013 and Apple still has a large presence nearby, but when the tech company opened a new headquarters a few miles away in 2017, that may have hurt the hotel’s profitability, he added.
Owner Shashi Group was co-founded in 2005 by brothers Dipesh and Manish Gupta. According to the company’s website, they also own Alofts in Sunnyvale and San Jose, as well as boutique hotel The Nest in Palo Alto and the eponymous Shashi Hotel in Mountain View. The brothers’ hotel room personalization app, Shashi.ai, was featured in the Wall Street Journal this spring.
Putro said that no other hotels belonging to the same borrowers appeared to be on special service.
The loan is part of a more than $1 billion commercial mortgage-backed security issued by Deutsche Mortgage in 2014. Fitch said it was the largest “credit risk” in the pool, according to a January 2023 report by the rating agency.
When the bond was issued, the borrowers stated that corporate demand accounted for 85 percent of the hotel’s revenue, as the hotel is located near not only Apple, but also Google, Seagate, PwC and Amazon.com, Fitch said.
When the pandemic hit in 2020 and business travel came to an abrupt halt, the loan was taken to a special administrative region. At the time, an appraisal of the property showed that its value had actually increased at the time of issuance: it was $54.5 million, compared to $48.6 million in 2014.
A 2022 amendment essentially granted a deferral of the missed payments, with the deferred amount to be repaid by the end of June 2024, two months before the due date. The amount has been current since then, even though the borrower reported debt service ratios below break-even in 2022 and 2023.
“There’s really no indication why performance hasn’t recovered, especially since we’ve seen a pretty significant improvement across the industry (business travel) over the past few years,” Putro said.
In June, Cupertino hotel occupancy was up 13 percent year-over-year, but the 12-month rolling average puts occupancy at about 68 percent, well below 2019 levels of 78 percent, said Emmy Hise, senior director of hospitality analytics at CoStar. Weekday occupancy, a key metric for business hotels, also rose nearly 12 points year-over-year, but is still 10 points below pre-pandemic levels.
Read more
Hotel revenues in California fall by almost 50 percent in the first half of the year
The Zappettini family is not paying back its Mountain View portfolio, although it has planned to redevelop it
Development
San Francisco
After loan default, lenders seize approved hotel site in San José
Average daily rates at hotels in Cupertino also remain well below pre-pandemic averages — currently $210, up from $247 in 2019. Although that number is up 5 percent year-over-year, it’s one of the few markets CoStar covers, along with San Jose, that hasn’t exceeded 2019 room rates, Hise said.
“I’m seeing similar trends to the San Jose market area, where hotel performance has been recovering for a longer period of time, but there’s been a recent resurgence,” she said, likely helped by tech companies’ recent work-from-office initiative.
