Guests at the Plaza Hotel probably didn’t look twice at the flags flying in front of the New York landmark the night of Oct. 14. Casual observers saw the display of Israeli, Saudi, Singaporean and Canadian standards above the doors of the slightly careworn, but iconic hotel as further evidence that this city is the crossroads of the world. But the principals of the recently concluded $675 million sale of the property knew better the collection of banners proved that a slick and spendy deal crosses all borders.
For this kind of money, it’s no surprise.
Elad Properties, the North American arm of Elad Hotels Ltd., an Israeli hotel and development group, swooped in over the summer and quickly agreed to buy the Central Park South building, turning a 107 percent profit for Plaza owners, a partnership between billionaire Saudi Prince Al-Waleed bin Talal and Millennium & Copthorne Hotels, who bought the storied building from Donald Trump for $325 million in 1995.
While the owners could rest assured that the hotel’s storied reputation was enshrined, the tourism and travel downturns following the Sept. 11 terror attacks in 2001 pummeled its recent performance. The Plaza lost $1.8 million before taxes last year, according to published reports, and insiders called that a vast improvement from its 2002 figures. Analysts suggested it needed at least $100 million in capital expenditures by 2009, just to stay competitive.
“It was tired,” says Scott Latham, executive director of Cushman & Wakefield’s recently assembled capital markets group, which handled the sale. “It was losing money or was a marginal operation at best.”
But Latham and Yoav Oelsner, a director on the C& team, took a few murmurs of discontent and turned them into a blockbuster deal.
According to Latham, the transaction wouldn’t have happened without the exact confluence of interests, personalities and negotiating styles that saw Eloise’s storybook home change hands.
“The property was not officially on the market,” Latham said during an interview in his Midtown office. “We had heard from a couple of separate sources that Al-Waleed was talking about selling the property, and we made some calls.”
Those calls resulted in seven frantic weeks of deal-making that livened up a torpid summer, at a time when the brokers were ready to exhale after closing a $125 million deal for Elad, finishing negotiations to buy the Gift Building at 225 Fifth Ave. in a whirlwind 48-hour stretch.
The most important call Latham made was to Singaporean hotel magnate Kwek Leng Beng, whose Millennium & Copthorne group owned half of the Plaza. The hotel is managed by Fairmont Hotels and Resorts, a Canadian company in which Al-Waleed has a 16.5 percent ownership stake.
Kwek was guarded but receptive to Latham’s overture, which prompted Oelsner to contact Miki Naftali the only potential buyer they thought they needed. Naftali, the public face of Elad, has been a good client, and, according to Latham, “one of the most decisive, focused real estate professionals I’ve ever worked with.” Though the ink on the Gift Building deal was barely dry, the brokers felt they knew their man well enough to decide Naftali would embrace another opportunity.
“This was the kind of situation where you have one shot, and you go to your best guy,” Oelsner says.
Naftali set up shop in New York in 2000, specializing in condominium conversions. Besides the Gift Building, his portfolio includes 71 Murray St., 21 Astor Place and 160 West 86th St., a new construction project.
Elad also recently purchased the former SIR Studios site at 310 West 52nd St., where there are plans to build a 42-story apartment tower, as well as buying the largely vacant (except for stores) seven-story 650 Sixth Ave., which will be converted to condos. About 500 of Elad’s 1,300 planned New York condos are complete.
“He was the only guy we went to, and he said, ‘I’m all over it. Go get it for me,'” Oelsner recalls.
Latham said initial negotiations were tricky. Since the sellers weren’t officially sellers, the buyer wasn’t necessarily in the market and the property wasn’t formally available.
But the initial contacts with Millennium & Copthorne were promising enough that in early July, the brokers joined Naftali and Hong Wen Rong, the hotel chain’s joint chief executive officer, in a 15th floor suite at the Plaza, overlooking Central Park in the full bloom of summer.
“These were super-highly confidential discussions,” Oelsner recalls. “This was not a regular scenario. It wasn’t like Miki was going to call up the Sunshine Group or Douglas Elliman to get comparable values on Central Park properties.”
Hong held back in the initial discussion, not even offering Naftali a floor plan, says Latham. He did, however, get negotiations going with a question: “How much do you think this room is worth?”
The brokers say Naftali didn’t miss a beat, and asked for a few minutes to look around. After a 30-second tour of the 1,500-square-foot suite and some back of the envelope calculations, Naftali suggested that $4.3 million would be a fair price.
The next day Naftali and his brokers were rewarded with a floor plan of the 15-story building and a request for its likely market price.
“It was a process of extrapolation for valuing the rest of the property,” Latham says, adding that pricing information from Millennium was a hard slog.
At the same time, negotiations with Prince Al-Waleed were progressing on a parallel track, but they remained shadowy and less focused than discussions with Kwek and Hong, who likely saw Naftali’s partial condo conversion plans as a way to boost the entire hotel’s fortunes.
“Kwek is really the hotel guy,” Latham says of the partnership. “Al-Waleed is more of a finance guy. The Plaza’s losses may have been cyclical, but they both knew that they would, in effect, have to double down [on capital improvements] to revive it.”
Offers went out to Al-Waleed at $550 million, and at an unspecified but higher price to Kwek. The offer to Kwek, sent out on a Friday, yielded an e-mail invitation Monday to discuss the deal.
In Singapore.
“We came into the office to a message that said: ‘I’m prepared to meet with you Thursday at 4 o’clock,'” Latham says.
“We didn’t know what we were going for,” Oelsner recalls. “At this point we don’t have a deal, we don’t have an acceptance of offer, we have an invitation to meet.”
Latham, who has done several deals with Asian investors, understood that the invitation was neither given lightly nor optional. While Americans tend to rely on contracts and the letter of the law, he says Asian business places a greater emphasis on personal bonds and that what remains unspoken is often as important as what gets spelled out.
“It’s just a different cadence and tempo for doing business in another part of the world,” he says. “The bottom line is, we made those plane reservations to fly to Singapore.”
As the brokers describe it, the meeting with Millennium & Copthorne’s top management started at 11 a.m. and ended with a handshake and a signed letter of intent to purchase the Plaza at 7:30 that evening, followed by a frantic dash to Changi Airport, where Naftali nearly missed his departing flight.
Three weeks later, the purchase contract was signed for $675 million, which comes out to $838,000 a room.
“It happened very fast by any standard,” Oelsner says with wry understatement.
Much remains unclear about the future of the Plaza. Though Elad has retained Fairmont, the operator of posh resorts and classic hotels such as the Chateau de Frontenac in Quebec, to run the Plaza, it’s still unclear how much of it will go condo.
Emma Thompson, a spokeswoman for Fairmont’s U.S. properties, said the group will take its orders from Elad.
They’re obviously studying plans for the upgrade and re-energizement of the property It is up to them how we would be involved,” she said.
With luxury hotel residences commanding stratospheric prices in New York hedge fund mogul Martin Zweig listed his triplex at the Pierre Hotel for a whopping $70 million in October the planned condos will surely generate interest in the high-end market.
It will also perk up the Plaza, which could benefit from the recent upswing in New York tourism just as the new owners take control.
Jan Freitag, a director with the consulting group Smith Travel Research, says New York is ahead of the national surge in hotel occupancy and revenue rates.
Nationally, revpar, or occupancy and per room revenue, was up 7.5 percent for the first three quarters of this year compared to the same period in 2003. New York revpar jumped 20.6 percent over the same time.
“I would assume the buyer is very much aware of these fundamentals,” he says. “And the Plaza has a built-in marketing machine in its reputation. I assume they will be able to reap their investment back rather quickly, especially with the condo piece.”
Geoff Davis, president of Denver-based investment advisor Hospitality Real Estate Counselors, says a partial condo conversion will change the revenue profile, but probably bolster performance.
“In most parts of the world, that would probably be a very high price per room, but this is a one-of-a-kind, irreplaceable asset,” he says.
“The condo-hotel concept has been around for a long time, and from an ownership standpoint, it does take some of the risk away. You’re trading short-term profits for long-term profits. The Plaza would be a proverbial slam dunk.”