Andrew Farkas bets on New York hospitality with $ 185 million Lexington hotel purchase – Commercial Observer
The New York hotel scene may be slipping into a “depression,” but André Farkas‘ Island capital group recently made a contrary statement.
The New York real estate mogul’s global investment firm – in a joint venture with MCR and Capital of the Three Walls – bought the history Lexington Hotel at 511 Lexington Avenue in Midtown East for $ 185 million earlier this month, or about $ 255,000 per key, just over half the cost of what the seller, DiamondRock Hospitality Company, paid for it in 2011 – $ 333.7 million.
HPS investment partners provided approximately $ 125 million in debt to help buyers of the joint venture acquire the asset, mortgage records show.
In total, Island Capital and its partners have managed to procure a well-known, Marriott Internationalbranded hotel – a staple of a hospitality hot spot along Lexington Avenue – for 55 cents on the dollar in preparation for what they believe is a comeback.
“We’ve seen a lot of things, but no one is doing it perfectly,” Farkas told Commercial Observer. “No one is reaching the absolute top, and I hope we don’t reach the absolute bottom. We were very well in the opportunistic investment envelope with the price we paid, the moment we paid it, [and] the position of this asset on the market.
DiamondRock, however, saw this provision as a good way to reduce its exposure in New York City.
“We are delighted to announce the closing of this transaction, which resizes our portfolio’s exposure to New York City,” said President and CEO of DiamondRock. Marc Brugger said in a statement earlier this month as part of its announcement of the sale.
After reviewing a number of opportunities across the city, Island Capital identified the Lexington Hotel as the first investment to come out of its new $ 250 million fund targeting “distressed opportunities generated by COVID-19” – a war chest that the company has compiled. in a short time during the pandemic to target a variety of leading assets in New York City that have been negatively impacted by the pandemic, according to Farkas, who is the founder, president and CEO of Island Capital.
The company has not made its first investment in this fund in a year, as it examined a multitude of potential opportunities. What made the Lexington hotel business attractive to the Farkas company was that DiamondRock had spent a lot of time and money renovating the asset prior to the pandemic, and also because “stocks on the market have declined considerably ”.
“There are new upholstery, and the bedrooms and common areas have all been updated, so it was a plug-and-play opportunity,” he said, adding that “in this particular hallway from the city, so close to The Waldorf [Astoria Hotel], approximately 3,000 pieces were definitely taken out of the inventory. It is not a small number of rooms. Farkas highlighted the closures of the Omni Berkshire Place Hotel, The Roosevelt Hotel, and The Maxwell Hotel as examples of key hospitality loss in the area that created a small vacuum.
that of New York new rules aiming to slowdown in hotel development also means that the existing inventory “has become materially more valuable, especially since operationally and tactically the city is dealing with COVID in a different way,” Farkas said. “He’s trying to get back to normal, and that also means tourism. And companies organize meetings and events.
Between 2007 and 2020, more than 54,000 hotel rooms were added to New York’s inventory, a 73% increase from previous years, according to information from the Department of Town Planning. Now, the city wants to compress its hotel stock, despite projections showing that the rebound of the hotel sector will accelerate next year.
The 725-key Lexington Hotel was built in 1929 and is nestled on the corner of Lexington Avenue and East 48th Street. It has been closed since March 2020, but is set to reopen on August 1. MCR will manage the asset, which will operate under the Marriott’s flag Autograph collection.
Over the years, the lobbies of this iconic and iconic hotel have been frequented by a variety of celebrities and icons from sports and entertainment, including Ella Fitzgerald and New York Yankees Legend Joe DiMaggio, who lived in a suite with Marylin Monroe for a brief period when the couple married in the early 1950s. It has also hosted famous nightclubs, such as the Hawaiian Room and Madrid castle.
While the pandemic has not been mild for the majority of New York’s most famous hotels, the pressure on the area is gradually easing as the city slowly rebounds. Hotels have reopened for the summer to help support the return of sports and entertainment attractions to the city.
In April, CBRE predicted that New York City hotels would not fully recover until 2025. And, earlier this month, the American Hospitality and Accommodation Association (AHLA) wrote in a mid-year report that the New York hotel scene was one of more than two dozen US hotel markets currently in “depression.”
The pandemic wiped out about a third of New York’s hotel room inventory, while its revenue per available room in May was just $ 95, down 62% from May 2019, according to the AHLA.
Yet New York has historically been one of the country’s busiest tourist destinations, and Farkas sees the light at the end of the tunnel.
“The [Lexington Hotel] has already been redeemed for events like the US Open“said Farkas, referring to the annual tennis tournament which is played from late August to mid-September and held at USTA Billie Jean King National Tennis Center in Queens since the late 1970s. “You’re close to all the places people want to go and you’re in the Midtown East corridor for offices. Island Capital also expects business travel to start picking up after Labor Day as more companies begin to bring their workforce back to the office.
As the city looks forward to a potential hospitality rebound in 2022 and beyond, the larger history of hotels is encouraging. Hotel employment, room revenues and the average annual hotel occupancy rate in the United States are expected to increase.return more significantly to pre-pandemic levels in 2022, according to an AHLA report this month that cited data from Oxford economy.
“We are proud to acquire the Lexington Hotel and are delighted to reopen the property as we emerge from the pandemic,” said Farkas. “We are confident that New York City will recover from what has been a very difficult time in [its] history … we are well placed to capitalize on the return of [its] the booming hotel industry.
Mack Burke can be contacted at [email protected].