Highgate Hotels and BentallGreenOak avoided defaulting on the Royalton Park Avenue Hotel once during the pandemic, but now, a second wave of distress is rolling their way.
Last week, Moody’s downgraded a security holding the mortgage at 420 Park Avenue South in NoMad to deep junk status, Crain’s reported. The ratings agency stated there was a “high default probability” for the 249-key hotel.
The loan was securitized in 2012, five years before the current owners bought the property. Since then, “cash flow has generally declined annually,” according to Moody’s, pointing to lower revenue and increased operating expenses.
For the 12 months ending June 30, the hotel generated only $4.2 million guest-related income. In calendar 2022, guest-related income was slightly better at $4.7 million. But the owners have been unable to cover payments on a $124 million mortgage since 2020.
Two years ago, ownership of the property neared default after falling behind on its mortgage and having the loan transferred to special servicing, according to Crain’s. That year, the hotel’s mortgage was converted to an interest-only loan; Highgate and BGO contributed $7.5 million to cover operating expenses.
Ownership, which didn’t comment to Crain’s, aims to modify the loan again. It’s set to mature in June.
In 2017, GreenOak Real Estate — before it morphed into BGO — and Highgate purchased the Gansevoort Park Avenue NYC hotel in an off-market deal from Gansevoort Hotel Group, Centurion Realty and Douglaston Development for roughly $200 million. The deal came out to roughly $800,000 per key.
The hotel closed for 18 months during the pandemic, reopening in September 2021.
If the hotel can stay afloat, its owners can benefit from some of the forces shifting in favor of the hospitality market. Hotel owners are experiencing a surge in revenue as tourism comes back to life in New York City, and they stand to reap further gains as Airbnb virtually disappears from the Big Apple.
— Holden Walter-Warner
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