A hotel just blocks from Apple’s old headquarters in Cupertino has gone into special servicing after missing the pay-off date on a $30 million loan this month, according to Morningstar.
The 123-room Aloft, a Marriott brand targeted at younger, tech-savvy customers with amenities like a robot butler who delivers room service items, got nearly one-third of its revenue from corporate contracts with Apple when the loan originated a decade ago, according to Morningstar analyst David Putro. The hotel opened in 2013 and Apple still maintains a large presence nearby, but when the tech company opened a new HQ in 2017 a few miles away, that may have impacted the hotel’s profitability, he added.
Owner Shashi Group was co-founded in 2005 by brothers Dipesh and Manish Gupta. 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, according to the company’s website. The brothers’ hotel room personalization app, Shashi.ai, was featured in the Wall Street Journal this spring.
Putro said no other hotels by the same borrowers appear to be in special servicing.
The loan is part of a $1 billion-plus commercial mortgage backed security issued by Deutsche Mortgage in 2014. It was Fitch’s largest “loan of concern” in that pool, according to a report from the ratings firm in January 2023.
At issuance, the borrowers said corporate demand accounted for 85 percent of the hotel’s revenue, given its close proximity to not just Apple, but also Google, Seagate, PwC and Amazon.com, according to Fitch.
When the pandemic hit in 2020 and corporate travel came to a screeching halt, the loan went into special servicing. At the time, an appraisal on the property showed its value was actually up from issuance, at $54.5 million compared to $48.6 million in 2014.
A 2022 modification essentially granted a forbearance on the missed payments, with the deferred amount to be paid back by the end of June 2024, two months prior to maturity. It has been current ever since, though the borrower reported below breakeven debt coverage service ratios in 2022 and 2023.
“There’s really no indication why performance has not rebounded, especially since by and large, we’ve seen a pretty marked improvement in the [business travel] sector as a whole over the past few years,” Putro said.
In June, Cupertino hotel occupancy had grown 13 percent year over year, but the 12-month moving average puts occupancy at about 68 percent, well below 2019 levels of 78 percent, according to Emmy Hise, senior director of hospitality analytics for CoStar. Weekday occupancy, an important metric for business hotels, is also up by nearly 12 points year over year, but still sits 10 points below pre-pandemic levels.
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Cupertino’s average daily hotel rates also remain well below pre-pandemic averages — $210 now compared to $247 in 2019. Though that figure is up 5 percent year over year, it is one of the few markets CoStar covers, along with San Jose, that has not exceeded 2019 room rates, Hise said.
“I’m seeing similar trends to those in the San Jose market area, which is a prolonged hotel performance recovery but a recent resurgence,” she said, which has likely been helped along by tech companies’ recent work-in-the-office push.