Hotel developer Sam Chang sold a 13-story Hell’s Kitchen building being operated quietly as a hotel to Israeli investors as part of a complex deal in which Hersha Hospitality Trust took title to a Chang hotel in Tribeca and wiped out nearly $20 million of his development loans.
Chang’s H Forty First Street LLC, sold the Hell’s Kitchen property at 440 West 41st Street for $17.5 million to a company owned by Israeli investors called US Suite on March 5, city property records published Monday show.
Although Chang sold the property March 5, he signed a sales contract Dec. 15 and ceded operations to US Suite on Dec. 22, when he signed over a net lease on the property, city records show.
Units in the building, located in the shadow of the Port Authority overpass between Ninth and 10th avenues, are available as nightly hotel rooms, a guard at the building told a reporter Monday night. The building has no signage identifying it as either a short- or extended-stay hotel. Several online hotel Web sites list the building as Metro Apartments with prices of about $150 per night. A representative for the building told a caller this week that up to 40 people could be accommodated in the building at one time for a short-term stay if given enough lead time.
Chang, in a telephone interview from China, said he never rented units in the building for less than 30 days. He added that he has not controlled the property for several months.
“I never rented that building nightly,” he said. “I sold that building three or four months ago.”
Despite the various Web sites apparently offering units by the night, Ben Suky, managing member of real estate investment company Livorno Properties, a co-owner of the building, said the property was not being rented for periods of less than 30 days. He added that they are converting the building into an extended-stay hotel.
The city’s Office of Special Enforcement, which tracks illegal hotels, received a complaint in 2007 and again in January about illegal hotel use at 440 West 41st Street but after conducting an investigation both times did not issue any violations based on use or occupancy, mayoral spokesperson Jason Post said in an e-mail.
However, a long-time resident of the building, Dana Turner, said she believed that since at least 2007 building management has rented out rooms for short stays of weeks or months.
An attorney representing Chang, Patrick Jones, provided The Real Deal with a certificate of occupancy for the building from 1997 which he said indicated that it was legal to rent to tenants for periods of 30 days or more. He said Chang never rented for periods of less than 30 days.
There are 96 residential units in the building, according to the city Department of Housing Preservation and Development. DOB would not provide The Real Deal with the certificate of occupancy for the building.
The Real Deal reported last month that there were four bills in Albany looking to tighten regulations on illegal hotel uses. While it is generally considered illegal to operate a building as a hotel in New York City without a hotel certificate of occupancy, the law is vague and the rules are loosely enforced, experts say.
The Real Deal reported last week that the Israeli company Aura Investments partnered with Livorno and U-Trend to buy the property, but in that article the location had not been disclosed. Aura Investments did not respond to an e-mail seeking comment.
The sale of the building was the final piece of a complex transaction in which Chang, the CEO of McSam Hotel Group of Great Neck, L.I., relinquished ownership of the Hilton Garden Inn in Tribeca to the Pennsylvania real estate investment trust Hersha Hospitality Trust in exchange for the forgiveness of $19 millions in development loans and other considerations.
According to Hersha filings with the U.S. Securities and Exchange Commission, the REIT bought 440 West 41st Street in July 2006 for $21.9 million, and immediately net leased it to Chang.
But in a related transaction, in May 2009, Hersha obtained a 49 percent interest in Chang’s Hilton Garden Inn in Tribeca, at 6 York Street at Sixth Avenue, and then in June, Hersha took the remaining 51 percent interest.
That was in exchange for giving Chang a financial package worth $67 million that included a cash payment of $4.8 million, the forgiveness of $19 million in development loans spread between 6 York as well as Chang’s Hotel Reserve at 51 Nassau Street, the assumption of a $30 million first mortgage at 6 York and other considerations, securities filings say.
Then in September 2009, Hersha transferred its entire ownership interest in the 440 West 41st Street property to Chang, who then sold it in March.
“This land parcel was part of the consideration given to acquire our 100 percent interest in [the Tribeca hotel],” Hersha, which declined to comment for this article, said in its annual report filed March 5.