A Houston-based developer got creative with financing a $290 million condo and hotel development near Buffalo Bayou Park.
DC Partners scored a $56 million mezzanine loan from Florida-based firm Southern Realty Trust for the Allen, a 35-story building planned for 99 luxury condos and a 171-key, Hyatt-flagged Thompson Hotel.
The Allen, at 1711 Allen Parkway in River oaks, started construction in 2019 and is entering its final development stages.
It was Southern Realty Trust’s first time issuing a mezzanine loan, which blends debt and equity, offering developers extra funding beyond what traditional lenders provide. Mezzanine loans are offered by non-bank financial institutions or specialized lenders.
Traditional bank lending on nonresidential properties decreased by nearly 4 percent year-over-year in September 2023, according to CoStar. Traditional banks have been sheepish around commercial developments over the past year, making financing trickier.
Mezzanine loans come with higher risks. Their interest rates increased to nearly 15 percent last year, up from the 10 to 12 percent that was typical in the preceding decade.
Besides that, it’s easier for lenders to foreclose on them. Mezzanine loan foreclosures hit an apex last year; 62 lenders foreclosed on mezzanine loans in the first ten months of the year.
While investors who employ mezzanine loans can enjoy the benefits of a project’s success without shouldering the full risk of equity investments, due to the adaptability of these funds, they’re also often the first to show signs of distress.
Read more
Development
Houston
DC Partners’ $290 million condo-hotel combo nears completion
Commercial
National
Foreclosure notices on mezz loans at all-time high
Commercial
New York
Blackstone mezz loan offered up by Koreans, signaling distress
Despite challenges in Houston’s housing market last year, the luxury market has remained robust, and a majority of the Allen’s residences have already sold. Remaining condos in the Allen cost about $1.8 million, and a few $3 million penthouses are still on the market.
The Allen’s condo residents will have exclusive access to the Thompson Hotel’s amenities, including its helipad, room service and concierge. The adjacent retail pavilion will include an EoS Fitness, Mexican steakhouse Toca Madera, and rooftop Mediterranean restaurant Meduza Mediterrania. The project is set to be completed this summer.