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NorthStar Real Estate Income II Originates $64 Million Senior Mortgage Loan

NorthStar Real Estate Income II, Inc., a publicly registered non-traded real estate investment trust, originated a $64 million senior mortgage loan secured by a 302-room full-service hotel located in Englewood, Colorado.

NorthStar Income II funded the senior loan with proceeds from its ongoing initial public offering. The REIT initially funded $56.7 million of the senior loan at origination, and intends to fund the remaining $7.3 million for property improvements and capital expenditures over the term of the loan.

The 340,000-square-foot hotel, which offers more than 50,000 square feet of indoor and outdoor meeting space, is located south of Denver’s technology center, within close proximity to various major corporate offices. The sponsor, NorthStar Asset Management Group, executed a franchise agreement with a nationally-recognized hospitality brand and plans to invest an additional $13.3 million (approximately $44,000 per room) in capital expenditures in connection with an approved property improvement plan. The unnamed borrower is an affiliate of a joint venture between a Denver-based hotel owner and operator, an experienced real estate private equity firm and an investment manager.

The senior loan bears interest at a floating rate of 4.9 percent over LIBOR, but at no point shall LIBOR be less than 0.25 percent, resulting in a minimum interest rate of 5.15 percent per year. The senior loan was originated at a 0.75 percent discount and NorthStar Income II will earn an exit fee equal to 1 percent of the outstanding amount at the time of repayment. The loan is currently unlevered and the REIT intends to obtain third-party financing in the future.

The initial loan term is 36 months, with two 12-month extension options available to the borrower. The loan may be prepaid during the first 24 months, provided the borrower pays an additional amount equal to the remaining interest due on the amount prepaid through month 24. Thereafter, it may be prepaid in whole or in part without penalty.

The loan-to-value ratio of the senior loan is approximately 71 percent.

NorthStar Income II is a publicly registered, non-traded real estate investment trust sponsored by NorthStar Asset Management Group Inc. that was formed to originate, acquire and asset manage a diversified portfolio of commercial real estate debt, select equity and securities investments. The REIT commenced operations in September 2013, and since November 10, 2015, has raised total gross proceeds of $808.6 million. In March 2015, the company’s board of directors extended the offering for one year to May 2016.