The Recession Hotels
The Great Recession has cut into New York's hotels like almost no other real estate sector. Room rates have tumbled from the record peaks of 2006 and 2007, as much as $60 on average from this time last year to about $200 nightly, according to PKF Consulting, which tracks hospitality stats.
Consequently, hotel revenues in the city are down 30 percent, according to John Fox of PKF. He predicts the demand for New York hotel rooms will continue to decline throughout 2009, and won't pick up again until at least 2012. In February, the Bloomberg administration adjusted its tourism projections for 2009 to reflect a 5 percent annual drop in tourism.
So what of the best of the many new hotels opening in Manhattan? They all face the challenge of filling rooms--and, in some cases, selling property shares--amidst the greatest economic downturn in 80 years. Some, like the Trump SoHo, seem well enough on their ways. Others, not so much: Four of the top new ones are genuinely distressed, according to Real Capital Analytics: 250 Bowery, the Dream Hotel, the Beekman Tower Hotel, and the Eastgate Tower Hotel. Several of challenged hotels fall downtown, including the W Downtown, 50 West Street and the new Four Seasons.
To wit, the 11 most challenged hotel projects in Manhattan right now.
—By Bonnie Kavoussi
Nobu Hotel and Residences at 45 Broad Street
Developers: Robert De Niro, Kent Swig, and Nobu Matsuhisa
When the news broke in May 2008 that Robert De Niro’s upscale Nobu restaurant chain would open a Japanese-themed hotel and condo in the Financial District, it sounded like a sweet deal: mini-bars with green tea and sake, room service from the Nobu restaurant, and stores and an observation deck on the top floor. But construction of the eco-friendly, 65-story tower at 45 Broad Street—a joint venture by Swig Equities, Mr. De Niro, and star chef Nobu Matsuhisa—has stalled. Lehman Brothers tried to foreclose on the project in January 2009, claiming that Mr. Swig had defaulted on at least $49.2 million in loans.
While the lawsuit is still ongoing, Mr. Swig’s attorney issued a blistering response to the complaint in May 2009: “[Lehman’s] bankruptcy derailed, if not doomed, the Project, causing among other things, a termination of discussions between the parties, depriving 25 Broad and 45 Broad of further financing, preventing further development of the Project, and blocking further development of the 45 Broad Property. Lehman has successfully implemented the scheme and avoided its obligations.”
Meanwhile, the developers are also fighting battles on other fronts. Lehman—not sated with dooming just one of Mr. Swig’s hotels—is also filing to foreclose on his Exchange Condominium at 25 Broad Street. The first Nobu Hotel, which was supposed to debut last summer in Tel Aviv, has also seen its opening delayed, though the Web site insists, “Construction of the hotel has already started and the hotel will be open in summer 2010.”
Eastgate Tower Hotel at 222 East 39th Street
If you stay at the Eastgate Tower Hotel, you will enjoy luxury accommodations: a special staffer can go grocery shopping for you and even perform “secretarial services.”
But when the Eastgate Tower Hotel purchased 222 East 39th Street from Manhattan East Suite Hotels in October 2006 and renovated the space, Eastgate made the unfortunate decision of borrowing from a doomed foreign bank. They borrowed $145.8 million from Anglo Irish Bank, which the Irish government nationalized in January after a loan scandal forced both its chairman and CEO to resign. (They had failed to reveal $124 million in loan transfers.)
Real Capital Analytics, which estimates the property’s value to be $59 million, has classified this East Side hotel as one of Manhattan’s four distressed hotel assets.
The Beekman Tower Hotel at 3 Mitchell Place
Blocks away from the United Nations, the luxury Beekman Tower Hotel seems to have been designed for foreign dignitaries.
When 3 Mitchell Place was converted from a commercial building into the Beekman Tower Hotel in 2007, the hotelier borrowed $74,734,991 from Anglo Irish Bank in October 2006. Little did they know that Irish government would nationalize it two years later in the aftermath of a loan scandal.
Real Capital Analytics, which estimates the property’s value to be $54.26 million, has classified this East Side hotel as one of Manhattan’s four distressed hotel assets.
The Dream Hotel at 210 West 55th Street
Developer: Vikram Chatwal Hotels
The luxury Dream Hotel was renovated in 2004 for a price.
Records show that it borrowed $150 million from Column Financial in May 2006 and $60 million from HSBC in May 2005. While neither lender has sued Surrey Hotel Associates, one of the two did collapse.
Column Financial—the commercial real estate lending arm of Credit Suisse—closed down in March, and Credit Suisse is selling off Column Financial’s remaining loan portfolio. Records show that Column Financial has already sold its Dream Hotel loan as part of a mortgage-backed security.
Real Capital Analytics, which estimates the property’s value to be $100 million, has classified this West Side hotel as one of Manhattan’s four distressed hotel assets. At least it has an 87 percent occupancy rate—for now.
Developer: Peter Moore Associates
After construction had stalled for months, Wells Fargo filed to foreclose on this green hotel project in March, claiming that developer Peter Moore Associates had defaulted on more than $40 million in loans.
According to Real Capital Analytics, this SoHo property—estimated to be worth $12.7 million—is one of Manhattan’s four distressed hotel assets.
Trump SoHo at 246 Spring Street
Developers: The Trump Organization; the Sapir Organization; the Bayrock Group; and The Apprentice’s Season 5 winner, Sean Yazbeck
The 46-story Trump SoHo condo-hotel had a troubled history before the financial crisis.
The city halted construction when 19th-century human remains were found at the site, and again when a worker died from a fall from the 42nd floor. Glass shards have fallen to the sidewalk, and the Department of Buildings has documented 79 violations so far. The Greenwich Village Society for Historic Preservation has also been challenging the legality of the 400-unit glass-and-steel monolith.
But, even after the financial crisis hit last September, construction proceeded comparatively well. And backing from Sapir and Bayrock has remained steady: They loaned $30 million to the project just last month. According to Ivanka Trump’s Twitter feed, construction is “almost done,” and the Web site touts an opening date of Fall 2009.
1 Hotel and Residences at 20 West 40th Street
Developer: Starwood Capital Group
This 31-story, 186,000-square-foot hotel and condo in Bryant Park was supposed to be Manhattan’s first green five-star hotel. But construction still hasn’t started, and meeting its 2010 opening date seems unlikely. At least developers, including Barry Sternlicht, were able to borrow $44 million from Petra Mortgage Capital Corporation—back in September 2006.
50 West Street
Developer: Time Equities
This stalled eco-friendly hotel and condo is yet another omen that FiDi is not going to become a 24/7 residential/commercial haven so soon. Time Equities had bold plans for a 63-story, 725-foot tower with 300 condos, 155 hotel rooms, and LEED-Gold certification.
But just as foundation preparations were getting under way, Francis Greenburger’s firm has put the project on hold. PNC Bank hasn’t been especially generous in funding the project. While the bank loaned $95 million in May 2008, it loaned $56.49 million in February 2009.
W New York Downtown
Developer: The Moinian Group
Joseph Moinian, who bought the smaller Deutsche Bank building for $30 million in 2005, had grand plans to replace it with a 57-story hotel and condo. He gave the FiDi project at 123 Washington Street to his son Matthew (above in 2008, with the W going up behind him) to head up construction, letting his son keep the 56th floor to himself. The younger Mr. Moinian told The Observer in September 2008 that it was going to be “the ultimate bachelor pad.”
But the 24-year-old has had to wait on the penthouse of his dreams. After several accidents at the site, the Department of Buildings issued a stop-work order that has since been lifted. (The DOB has recorded 121 violations for the site so far.) Though the W’s Web site says it is scheduled to open on Dec. 1, elitemeetings.com says that it is going to be completed in 2010. Either way, the hotel’s opening is likely to come at a loss. Construction has relied on over $300 million in loans: $39 million from KeyBank and $290.6 million from PB Capital.
Will the Moinians be able to pay it all back? Interior Construction recently sued the Moinian Group for almost $500,000 in allegedly unpaid work redeveloping the office building at 1450 Broadway near Times Square. Mr. Moinian has also informed lenders that he is expecting to default on two loans due in November, according to a recent Crain’s report: a $292 million loan for 180 Maiden Lane and a $53 million loan for 17 Battery Place North. At least when the W is finished, it will have a rooftop terrace, private spa rooms, and a lounge and bar where Matt Moinian can finally be the ultimate bachelor.
Four Seasons Hotel at 99 Church Street
Developers: Silverstein Properties and the California State Teachers’ Retirement System
This 80-story limestone hotel and condo, soon to be Manhattan’s tallest residential building, was supposed to be topped out in 2010. But construction and Larry Silverstein’s signals about the project have been on and off.
In a speech in late March, Mr. Silverstein vacillated on whether the project would go forward: “Is this going forward? Can’t do it without financing. Is financing available today? Not easily.”
Later in the spring, Mr. Silverstein made a show of rushing to ensure that the $1 billion project would meet its new deadline in the first quarter of 2012. But now, the project has effectively been halted.
The Shangri-La Hotel at 610 Lexington
Developer: RFR Holding Partners
The trouble started when Aby Rosen signed on for $145 million in loans from Lehman Brothers in April 2007, in addition to another $68,647,842 loan from Lehman. Then the investment bank went under.
On Nov. 25, ING Real Estate Finance and Swedbank took $145 million of those loans off Lehman’s hands—but since Mr. Rosen’s RFR Holding defaulted on the loans when they were due April 8, the two banks filed to foreclose on the hotel site. Shangri-La itself pulled out of the project at 610 Lexington and 53rd Street in April, spelling out certain doom.
The Hong Kong-based hotelier and RFR were planning a 206-room, 64-story condo-hotel at the site next to the Seagram Building—over 200,000 square feet of slender glass grandeur. But now the hotel that would have had the largest guestrooms in Manhattan is little more than a stalled construction site, now canceled.