The new owners of the W New York-Union Square hotel threw the troubled property into bankruptcy protection Tuesday afternoon, the day before senior lender DekaBank was scheduled to auction off a loan on the hotel.
LEM Mezzanine, a Philadelphia-based private equity fund, previously bought the 270-room property in December for $2 million, plus the assumption of $212 million in debt, in a so-called mezzanine foreclosure auction. The W, located at 201 Park Avenue South, was auctioned off after the Dubai financial crisis left Isithmar, the private equity arm of state-controlled Dubai World, scrambling to sell assets. “Efforts to restructure the remaining mezzanine debt have not yet been completely successful,” LEM said in a statement. “Today’s filing was intended to provide additional time to complete that process, and emerge with a healthy balance sheet that allows the hotel to continue to thrive in a competitive marketplace.” Comments

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Istithmar World Capital, the investment arm of the Dubai government, has defaulted on its $300 million mortgage on the former Knickerbocker Hotel site in Times Square and turned the property over to its lender. Istithmar had been planning to convert the site’s 300,000-square-foot office building back into a high-end hotel, and now that Dubai is out of the picture, vulture investors are reportedly chomping at the bit to take the helm at a steep discount. The lender, Danske Bank A/S, hired Jones Lang LaSalle to market the property, and the brokerage’s Ben Singer said interest has been high. One such interested bidder is said to be Sitt Asset Management, which owned the building before Istithmar bought it in 2006. Istithmar had stopped renewing leases in the office building there, known as 1466 Broadway, and had also purchased an adjacent vacant lot for $76 million, as part of its hotel conversion plan. The building is now almost 50 percent vacant, according to research firm CoStar. Dan Fasulo, managing director for Real Capital Analytics, said the property would be best-used as a hotel. He said the first mortgage note is valued at $290 million, though the property could be worth less than that because it is in need of renovations. [WSJ]

Two of UBS Commercial Mortgage Trust’s commercial mortgage-backed securities have been downgraded, according to the Moody’s ranking system, with the affected loans in the pool attached to the Essex House in Midtown and the W Hotel Washington, DC. The two loans represent about 16 percent of the trust balance, according to the Moody’s report. The Jumeirah Essex House is sponsored by the Dubai Investment Group Limited and Dubai Holdings, and analysts say the property may be shed in the wake of Dubai World’s debt payment suspension request. The two structured securities in question, Class E and Class F, valued at approximately $27.19 million each, were downgraded to Baa3 and Ba1 rankings, respectively. TRD

W New York – Union Square hotel

LEM Mezzanine, a Philadelphia-based private equity fund, acquired Istithmar’s former W New York – Union Square hotel for $2 million, plus the assumption of $212 million in debt, in a foreclosure auction held in Manhattan this morning, marking the first major asset to be sold since the November debt crisis emerged in Dubai. LEM bagged the troubled property at 201 Park Avenue South after a brief bidding war in which Istithmar officials tried to buy the 270-room hotel on the condition that they not have to assume the hotel’s October and November debt payments. Sources at the auction told The Real Deal that the hotel would continue to operate under the W brand, while LEM would make an undisclosed amount of capital improvements and position the hotel for an eventual recovery of the New York economy. “Despite the recent downturn of the hotel industry, and the defaults that led to today’s foreclosure auction, we are optimistic about the future,” LEM’s affiliate company said in a statement. [more]

At CNBC’s recent “Billionaire Roundtable,” real estate bigwigs real estate bigwigs Sam Zell, chairman of Equity International, Wilbur
Ross, chairman and CEO of WL Ross & Co., and Richard LeFrak, president and chairman of the LeFrak Organization, weighed in on the outlook for commercial real estate. Zell appeared the most optimistic of the bunch, arguing that headlines projecting the impending collapse of the commercial real estate market have been greatly exaggerated. While Ross said he believes the fallout from Dubai‘s debt crisis wouldn’t be “the terrific contagion that some people had thought,” he insisted that commercial real estate will nonetheless be fighting an uphill battle for quite some time. “You’d be amazed how little office and retail space unemployed people need,” he said. “The biggest victims are going to be the regional banks.” Watch Part 2 of the video after the jump. [CNBC via Square Feet Blog] [more]

Direct impact of Dubai crisis on New York City is limited, experts say

As the international credit crisis spread into the kingdom of the United Arab Emirates, real estate experts said that while any direct impact on New York would be limited, it may signal the inability of sovereign wealth funds to bail out distressed assets here. The financial world briefly shuddered last week after Dubai World, the main investment arm of the powerful Gulf region city-state, asked lenders for a six-month suspension of nearly $60 billion in debt payments. Analysts say the suspension may force Dubai to sell many of its trophy assets around the world, including several high-profile buildings in New York, like the Jumeriah Essex House, the former Knickerbocker Hotel and the flagship W New York-Union Square hotel, whose mezzanine debt is scheduled for a Dec. 8 foreclosure auction. “Dubai got drunk with debt just like we did here in New York,” said Dan Fasulo, managing director of research at Manhattan-based investment research firm Real Capital Analytics. “A lot of people think Dubai [was financing its deals with] oil. In actuality, it was very much of a debt-fueled building boom.” [more]

To the investors hoping to score one of Dubai’s prized Manhattan properties as the beleaguered city-state struggles to climb out of its $59 billion debt hole, analysts are saying: not so fast. In order to sell any of its five Manhattan properties, Dubai World, the government’s holding company, would be taking a big hit, which might not be wise. The Knickerbocker Hotel building, which the company bought for $300 million in 2006, is half-empty and worth “nothing,” one source told the Post’s Steve Cuozzo. “They’re going to take a huge hit if they sell,” said Dan Fasulo, managing director at Real Capital Analytics. “They’re going to get wiped out.” Dubai World may also be underwater at 450 Lexington Avenue, where the company has a 99-year leasehold, purchased in 2006 for $600 million. Meanwhile, the W Hotel Union Square, bought for $285 million in 2005, was scheduled for a Dec. 8 foreclosure auction. [Post]

From left: Jumeirah Essex House, the Mandarin Oriental hotel, the Knickerbocker Hotel

The news of Dubai’s debt crisis, which has put already-teetering global commercial real estate markets on edge, stands to shake up New York City real estate as the state unloads its noncore assets in attempts to raise cash and pay off creditors. Dubai World, the government-controlled holding company, which last week announced that it would seek to delay payments on $59 billion worth of debt, owns iconic city properties like the Jumeirah Essex House, the New York W, the Mandarin Oriental hotels and the Knickerbocker Hotel. Deloitte, the accounting firm hired by Dubai World to restructure its liabilities, plans to ready a list of valuable, non-strategic assets that can be sold off quickly, the Post reported. Sources said high-profile hotels like the New York W and the Oriental would be likely to top such a list. [Post]
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Donald Trump, Jr. spoke at the Dubai International Convention and Exhibition Centre, along with Michael Atwell, Cushman & Wakefield’s head of Middle East operations (pictured second from the right in the third photo)

Dubai’s furious growth over the past five years has slowed exponentially with a greater presence of stalled plans for dozens of projects in what has been the busiest of the seven emirates in the United Arab Emirates. Kicking off the festivities this morning in the largest annual four-day real estate conference at the Dubai International Convention and Exhibition Centre, was the executive vice president for the Trump Organization, Donald Trump, Jr., at what was billed as the international keynote presentation. In his talk, Trump touted the steps that the local government has taken to stabilize the financial system, saying that he has no doubt that Dubai real estate, which has contracted considerably in the past year, will bounce back, though not to previous levels. [more]