From left: Jay Shah, CEO of Hersha Hospitality, a 2010 rendering of the Hyatt Union Square and Sam Chang of McSam Hotel Group
[Updated 10:54 a.m., June 30, with comments from Ashish Parikh, Hersha’s CFO]
Hersha Hospitality Trust said it agreed to buy the stalled Hyatt Union Square hotel in Manhattan for $104.1 million, or $595,000 per key, from McSam Hotel Group.
The hotel, at 132 Fourth Avenue, between 12th and 13th streets, was originally conceived as a Gene Kaufman-designed hotel for developer Sam Chang, president and CEO of McSam Hotel Group, but was delayed for several years amid a partial stop work order and other construction related problems.
Philadelphia-based Hersha said it will pay $36 million in cash, cancel a $10 million mezzanine loan that it made to the seller, plus interest, and assume two mortgage loans valued at $55 million. Hersha said the deal will close once construction is completed adding that it will not assume any construction or cost overrun risk as part of the deal.
“We worked out a deal with Sam where we will fund a portion of the remaining construction costs and have a forward contract to buy [the property],” Ashish Parikh, Hersha’s CFO told The Real Deal.
He added that if the project is not completed due to seller default, Chang would have to repay the $10 million loan plus interest.
The 175-room property will feature an upscale restaurant, lobby bar, rooftop lounge, pool, private terraces and a fitness center.
In October 2010, Hyatt and Hersha previously announced that they had entered into a franchise agreement for two hotels, the Hyatt Union Square and the 116-room Hyatt48 Lex, the first ground-up hotel in Midtown in more than 10 years.
Parikh said the acquisition of Hyatt48 Lex is not moving forward, but the property is still scheduled to open in a couple of months (note: correction appended).
The Hyatt Union Square was scheduled to open in the fall of 2011, but is now scheduled for a fall 2012 opening.
Hersha has worked closely with Chang over the years, including an acquisition of Chang’s Hilton Garden Inn at York Street in Tribeca.
The acquisition of the Hyatt Union Square marks one of the priciest hotel deals in recent months, amid a wave of hotel acquisitions.
John Fox, senior vice president at PKF Consulting, said the Union Square property has a lot of potential, with a very strong brand name attached to it.
“That’s a terrific site,” Fox said. “Hyatt is a very strong brand with a limited number of properties under its flag in Manhattan.”
In June, investor Aby Rosen agreed to buy the 597-room Paramount Hotel at 235 West 46th Street for $275 million. Northwood Investors agreed to buy the Palace Hotel at 455 Madison Avenue for $400 million in May, valuing the property at $445,000 per room.
Chang was not immediately available for comment.