Times Square’s Distrikt Hotel For Sale After Foreclosure

A Times Square hotel is back up for grabs two years after trading hands in a foreclosure auction.

Rialto Capital Advisors is looking to sell the 155-key Distrikt Hotel at 342 West 40th Street, Crain’s reported. The special servicer of the previous owner’s debt is hoping to sell the property by the end of the third quarter, according to Moody’s report.

Developed by Victor Afonso and Scott Schroeder of Greenway Realty Holdings, the hotel’s financial problems date back to nearly the beginning.

Shortly after it opened in 2010, the ownership entity sued its lenders for refusing to grant an extension on its mortgage. The lenders claimed the hotel failed to maintain the requisite debt service coverage ratio, meaning cash flow was too weak to reliably cover the debt payments.

Battered by intense competition in the vicinity of Port Authority, the Distrikt saw its coverage ratio fall throughout 2019; when the pandemic struck in early 2020, things got worse. About a month into the pandemic, a $35 million loan on the hotel that had been securitized was sent to special servicing, the Commercial Observer reported.

The Distrikt went into foreclosure in 2021 after shutting its doors throughout the pandemic, though the 32-story property eventually reopened when the court appointed a receiver in the case.

In 2023, however, a referee ordered the owners of the Distrikt to pay up after defaulting on a $46 million loan from U.S. Bank, the CMBS lender. The situation culminated with a foreclosure auction two years ago. U.S. Bank acquired the property on behalf of Rialto for $100.

Rialto did not return a request for comment on the sale process from Crain’s.

In recent months, Long Island investor Paramdeep Singh lost control of two Times Square hotels due to a combination of factors.

At 59 West 46th Street, Singh was undone by a former partner-turned-lender, Boris Aronov, who foreclosed on a $57 million debt. And at 129 West 46th Street, a planned revival with operator LuxUrban failed, leading to foreclosure and a sale at auction to bridge lender W Financial for $23.8 million.

Rialto is walking into a potentially challenging sales environment as the city’s daily occupancy rate wanes, potentially due to geopolitical concerns. But hotels could still be poised for a boom from the World Cup this summer, should Rialto sell before then.

— Holden Walter-Warner