TROY, MI—Known for its focus on the hospitality space, Axilla Capital isn’t afraid to capitalize on other project types as it grows, but that doesn’t mean it will be moving out of the segment anytime soon—or ever.
“Axilla approaches business from a fairness standpoint,” said Joel Mazur, managing principal at Axilla Capital, a commercial real estate finance and advisory firm. “Some firms take pride in ‘beating up’ the lender for every basis point or over negotiation of a term sheet. It’s a penny-wise, pound-foolish approach. We want all parties involved eager to do business together again.”
Mazur founded the firm in 2013 to leverage his background in the structured finance arena. Before getting his current venture off the ground, he worked for a couple of New York firms: Meridian Capital Group and The Carlton Group.
“Axilla focuses on arranging the full capital stack for transactions,” Mazur explained. “This includes senior debt, mezzanine financing and equity for projects ranging from multifamily to commercial. While the firm is adept at all property types, it specializes in the hospitality space.”
This may change as the company grows; however, the firm will always have a division dedicated to the space. This enables Axilla to keep up with several variables, including brand standards, capital sources and trends.
“Our company database allows us to track essentially every hotel development and transaction across the U.S., giving us a constant pulse of the market,” he said. “We know which deals are getting done, and the active debt and equity sources. By tracking hotel activity nationwide, we’ve established relationships with capital sources and hotel owners across all 50 states. Our vast database assists us in delivering tremendous value to our clients through debt placement, identifying off-market deals and arranging joint ventures.”
The majority of properties Axilla finances are flagged by Marriott International, Hilton and IHG. The firm has also worked with other hospitality groups, including Hyatt Hotels Corp., Wyndham Hotel Group, Choice Hotels International, La Quinta and others. Besides branded properties, Axilla also has an interest in boutique hotels in strong markets in the U.S.
“A successful deal is when every party walks away from closing pleased with the outcome,” he said. “In my experience, there’s a high correlation between a successful outcome and the quality of the team behind the deal. This extends beyond the broker, client and lender; it includes the title company, zoning consultant, insurance broker, third-party consultants and attorneys.”
Axilla Capital closed a $15.5-million non-recourse bridge loan on the Royale Parc Suites in Kissimmee, FL.
While Axilla doesn’t currently invest its own capital, it’s in the process of “exploring a separate vehicle to deploy our own proprietary funds for qualified projects that require mezzanine and/or joint venture equity,” he said. The firm’s approach to evaluating transactions is simple: It doesn’t take on an assignment unless the firm is confident in the execution.
“We spend a lot of time diving into the various markets to understand demand drivers and new supply,” Mazur said. “If we have any doubts about the strength of a project’s sponsorship or the deal’s attributes in general, we typically take a pass. We’re careful about our reputation in the marketplace, and we shoot for a high batting average, even if it means sometimes turning down a project that could potentially get done.”
Axilla has several loan programs: CMBS, equity, bridge, agency, portfolio and SBA. “The most popular seems to be a conventional portfolio loan, whether that be a bank, credit union or a life insurance company,” he said. “After the last downturn, many hotel borrowers had difficulty working out their problem loans with the special servicers. I think those negative experiences influenced our clients’ appetite for CMBS financing. We still think it’s a great product for borrowers interested in obtaining non-recourse or maximum loan-to-cost financing.” Other offerings in Axilla’s portfolio tend to be for special situations.
Potential clients trying to obtain financing from Axilla should be as transparent as possible. “If there’s a credit blemish on your resumé, disclose it,” Mazur said. “If a major demand driver or hotel account recently left the market, disclose it. Nine out of 10 times, the lender’s underwriter will unearth every skeleton in the closet about a deal. If our client can get out in front of potentially sticky issues, we’ve been successful at resolving them. We’ve seen similar problems occur when a client attempts to conceal the fact their hotel is not current with the brand’s standards, or if they have a PIP and underestimate the costs of the PIP.” Something to remember: The lender can have a third party review the borrower’s PIP budget.
Some of the deals Axilla closed this year include the following: Tryp by Wyndham College Station, TX, an $11.9-million non-recourse bridge loan; Delta Hotels by Marriott in Kalamazoo, MI, a $10.7-million renovation loan; and the Royale Parc Suites in Kissimmee, FL, a $15.5-million non-recourse bridge loan.
The firm’s outlook on the overall commercial real estate finance space is that there’s a much bigger presence by the banks, but this may change. “The risk retention rules implemented as a result of Dodd-Frank have seemingly been digested and are well received by the investment community,” he said. “If you couple that with the Basel capital requirements, recent rules regarding high volatility commercial real estate (HVCRE), and other regulatory guidance, we could start to see a reversal of this trend.” Right now, though, it seems the banks are actually maxed out on financing hospitality projects.
“As a result, we’re doing quite a bit more financing with alternative lenders like the debt funds,” Mazur noted. “They’re filling a void for some of the banks, particularly for construction and major renovations. The debt funds have a higher cost of capital, but we’ve found their execution to be faster and more seamless.”
Axilla doesn’t have an ideal transaction. It arranges financing for a variety of project types, including acquisitions, cash-out refinances, PIP renovations and construction loans. The firm is most active in the middle market, and its average deal size is about $10 million. The deals are typically much larger when Axilla is securing equity or mezzanine financing.
“As far as what others would say about our firm, I think they would tout our hands-on approach,” Mazur explained. “We’ve had situations where our clients were not represented well by their attorney, so we reviewed the loan agreement and marked up material provisions that could be an issue for our borrower down the road. In the end, it’s our reputation on the line.”
He continued: “Same goes for the more complicated loan products. CMBS loans, mezzanine financing and joint venture operating agreements can have complicated structures. We’re in the unique position to understand the complexities of these agreements and can strike the right balance to get the deal across the goal line.” HB
