LEM acquires W Union Square for $2 million at mezz auction
Equity fund also assumes $212 million in debt December 08, 2009 02:30PM By David Jones
W New York - Union Square hotel
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.
Istithmar, the private equity arm of state-controlled Dubai World, acquired the W Union Square in 2006 for $285 million, one of the highest prices ever paid for a New York hotel, on a per-room basis.
According to data from Manhattan-based research firm Real Capital Analytics, the W Union Square acquisition was financed with a $115 million mortgage loan and a securitized $117 million mezzanine loan from Column Financial, the commercial real estate arm of Credit Suisse First Boston.
In an Oct. 28 report, Realpoint said that the property's $115 million mortgage loan was transferred to LNR Partners, a Miami-based special servicer, and was placed on Realpoint's watch list.
LNR issued a default notice Nov. 16 and told Starwood to place all funds after operating expenses into a lender-controlled lockbox, Fasulo said.
In addition to the $2 million for the hotel itself, LEM assumed $212 million in debt including the $115 mortgage note, the $60 million A note, the $37 million B note, plus the costs of capital improvements and undetermined amount of defaulted debt from the last two months, according to sources familiar with the deal.
Under today's mezzanine foreclosure auction, the $20 million C note, held by LEM, was the actual debt being auctioned off, according to Allen & Overy, who oversaw today's sale.
Ray Cirz, chief executive of appraisal firm Integra Realty Resources, noted that average Manhattan hotel rates are down 25 percent from a year ago to below $300 per night, a level not seen since 2004. Occupancy rates have also fallen to about 75 percent, a level not seen since 2004.
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Comments
Anonymous
If Istithmar paid a record per room ($285MM for 270 rooms) then is LEM second highest per room ($212MM for 270 rooms). They have to be hoping for an early economic recovery; otherwise still looks overpriced.
Comment #1 Posted By: Anonymous 12/08/09
Anonymous
They will be screwed!
Comment #2 Posted By: Anonymous 12/08/09
Anonymous
agree with above, since 214mm (212 plus the $2mm to acquire this) is ridiculous today. The b-note will sell at a huge discount if it's not completely underwater. However, LEM is probably just protecting its existing $20mm investment by buying time to eventually maybe get out rather than being liquidated to $0 today, and LEM has possible opportunity to restructure or buy at a discount the debt. Sounds like the other buyer competing for this was the equity behind LEM, so this deal is not a market trade of a hotel that offers anything on valuation and pricing today.
Comment #3 Posted By: Anonymous 12/08/09
Anonymous
This is not a bright real estate transaction.
Comment #4 Posted By: Anonymous 12/08/09
Anonymous
The miracle in this transaction will be the speed at which this property reappears on the market. LEM has bought this property when it is already underwater. The assumption of this amount of debt, which, can in no way be serviced from the asset, is ludicrous. Unless there is some hidden secondary transaction happening here, the lender will be busy with another foreclosure within 6 months.
Comment #5 Posted By: Anonymous 12/08/09
Anonymous
#3 has it right, this deal is not a purchase it is a debt extension disguised as a purchase - time will tell
Comment #6 Posted By: Anonymous 12/08/09
Anonymous
The A is in a Trust. A control appraisal event could wipe out the control rights of debt holders below the A. Then the A restructures their debt with LEM.
Comment #7 Posted By: Anonymous 12/08/09
Anonymous
#7 Just because the A restructures their debt with LEM, the sub-debt is not wiped, so while it may not participate in restructuring and have to go on accrual or have its rate lowered, LEM will never get paid ahead of it. What could happen is that the trust sells the whole loan at a discount which wipes out some of the sub debt but not for LEM's (the equity's) benefit anymore than any other willing buyer of the debt.
Comment #8 Posted By: Anonymous 12/08/09
Anonymous
However, if the A forecloses, it will wipe out the other debt holders and then LEM bids itself back in at the auction.
Comment #9 Posted By: Anonymous 12/09/09
Anonymous
i think the point here is that virtually all desirable properties that have securitized debt and complex financing stacks will have similar issues during any inevitable workout process
Comment #10 Posted By: Anonymous 12/11/09
Anonymous
LEM has no $ to cure a 212mm debt stack, LEM is way underwater and will no doubt get rinsed
Comment #11 Posted By: Anonymous 12/18/09
Anonymous
Lubert Adler aka LEM are the biggest crooks the Real Estate World has ever seen, they have milked people out of over $5 billion dollars in Ginn Properties and are in litigation everywhere, their investors include Harvard, Princeton and Yale Universities, Kodak Wells Fargo, Philly PD and Philly Fire. They are the next Madhof and are already being investigated as we speak. Whatever they are up to here will be underhand and with Credit Suisse aka Column Finance involved makes it even more suspicious. Credit Suisse gave Lubert Adler and Ginn $675m loan which was never paid back and no-one has a clue where the money went, my guess is back to the investors above.
Comment #12 Posted By: Anonymous 03/28/10
Anonymous
#12 is simply a nut case.....
Comment #13 Posted By: Anonymous 05/23/10
Anonymous
loan which was never paid back and no-one has a clue where the money went, my guess is back to the investors above.
Comment #14 Posted By: Anonymous 06/04/10