The Real Deal New York

Milford Hotel $325M deal reflects growing appeal of hotel investments

March 25, 2013 10:00AM

The recent $325 million sale of The Milford Plaza Hotel land is a sign of the growing appeal of investing in hotels, which enjoy robust capitalization rates and rising occupancy, the Wall Street Journal reported.

Brooklyn investor David Werner, in partnership with Deutsche Asset & Wealth Management’s real-estate investment business, purchased the land parcel. “Acquiring the leased fee interest in a prime New York City location is expected to provide strong and durable long-term returns,” Todd Henderson, head of real estate in the Americas at Deutsche, told the Journal. The land deal was financed by a $275 million loan from Morgan Stanley. 

Rockpoint Group and hotel operator Highgate Holdings had acquired the 27-story hotel Located On Eight Avenue Between West 44th And 45th Street — in 2010 for $200 million. In February of this year, news broke that they would look to chop the hotel up into three pieces — the land, the 1,300-room hotel and the 26,000-square-foot retail unit — and sell for a combined value of $650 million.

The hotel is in the midst of an extensive renovation, and will continue to be operated by Highgate.

The Milford deal is a result of increased tourism to New York City that is fueling demand for hotels. In 2012, 52 million visitors came to the city, and hotel occupancy rates hit 86.5 percent, topping even the 2007 of 85.8 percent, according to CBRE’s 2012 New York hotel report. There were 79,802 hotel rooms in Manhattan, with another 30,867 rooms in the 2013 pipeline, the report said, with an average daily rate of $283.

The New York hotel market has benefited greatly from increased international travel, Tom McConnell, an executive with Cushman & Wakefield’s hotel transactions group, told the Journal.

“Hotels don’t sell very often here, and demand for investment in hotels is greater than opportunities,” he said.

Indeed, Manhattan topped the global hotel market with $2.7 billion in transaction volume, according to Jones Lang LaSalle. Manhattan hotel cap rates currently range between 4.5 percent to 5.5 percent for luxury hotels to 8 percent to 9 percent for economy. [WSJ]Hiten Samtani