"Last straw" for NYC hotel industry?

David Goldsmith

All Powerful Moderator
Staff member

Ashkenazy looks to push hotel into bankruptcy
Lender filed motion to protect $45M leasehold mortgage after ground rent default

In an “extremely unusual” situation brought about by the economic fallout of coronavirus, Ashkenazy Acquisition has found itself in the position of forcing a borrower into bankruptcy to protect its collateral.

The investment firm filed an involuntary Chapter 11 petition in late April to force the 190-room Surrey Hotel at 20 East 76th Street into bankruptcy, Commercial Observer reported. The move came after the hotel owner, Denihan Hospitality Group, missed its ground lease payment for April.

Ashkenazy, which took over a $45 million leasehold mortgage on the hotel in 2018 — when it was already in maturity default —would see its collateral wiped out if the ground lease were terminated, the motion notes. The lender accuses Denihan of “working with the ground lessor” to terminate the lease.

“Ground lessor seeks to take advantage of a worldwide crisis as a means to take back the valuable ground lease,” Ashkenazy’s lawyers wrote in the filing, noting that bankruptcy court is “the only available forum for relief at this time as the New York State courts are closed to commercial disputes.”

Although CO could not determine the identity of the ground lessor, Surrey Realty Associates LLC, property records indicate that the Kaufman Organization was the owner of the fee interest as of 2009.

A source told the publication that Ashkenazy’s filing is “anything but a regular bankruptcy,” as it is much more common for borrowers to file for bankruptcy to stave off foreclosures, and involuntary bankruptcies tend to be filed by several parties rather than just one.

With the coronavirus crisis reducing the value of the hotel to less than that of the loan, it may have made economic sense for Denihan to simply lose the ground lease and back out of the deal, the source noted.
 

David Goldsmith

All Powerful Moderator
Staff member

Times Square Edition to close after only a year
The lender on Maefield’s 20 Times Square project moved to foreclose in December

Marriott International has given notice that the Times Square Edition hotel will be shuttering this summer. It’s the latest in the ongoing saga at Mark Siffin’s 20 Times Square project.
Marriott’s notice comes after the operator warned the hotel owner, Maefield Development, back in March that the owner could go into default on its contract as a result of the pandemic, Bloomberg reported. Now, the hotel operator is making good on the warning and yanking its flag.

The Edition brand — created by boutique hotelier Ian Schrager and Marriott — opened the 452-room hotel last year at 20 Times Square. The mixed-use project, once appraised at $2.4 billion, has significant digital signage and retail space. Tenants include Hershey’s and previously, the NFL Experience, a joint venture between the National Football League and Cirque du Soleil.

Marriott’s closure of the hotel represents the latest setback for Maefield. In December, one of the developer’s lenders, French bank Natixis, filed to foreclose on the project. Natixis claimed $650 million of the $2 billion financing package it put together was in default due to “undischarged mechanics’ liens."

When the project began in 2012, Maefield’s partners in the venture included Steve Witfkoff, Winthrop Realty Trust, the Carlton Group, Howard Lorber’s New Valley and Fortress Investment Group. But Maefield and Fortress bought out the other partners in 2018 with the $2 billion financing.

Many hotels, already operating on thin margins before the coronavirus brought business to a halt, have been pushed to the edge as a result of the shutdown.
The owner of another hotel in Times Square, the Hilton on West 42 Street, wrote down the value of the property to less than its $77 million mortgage earlier in May and warned investors that it may hand it over to lenders, according to Bloomberg.
 

David Goldsmith

All Powerful Moderator
Staff member

Hotel occupancy hovers around 35% after Memorial Day boost
Occupancy rates hit a low of 21% in April

Hotels are slowly clawing their way back from pandemic purgatory.
National occupancy rates climbed to 35.4 percent between May 17 and 23, according to weekly data released by STR. That’s up from 32.4 percent the week prior, and it marks the sixth consecutive week that rates have improved.
Occupancy hit a low of roughly 21 percent in early April, and crossed the 30 percent threshold in the first week of May.

Jan Frietag, STR’s senior vice president of lodging insights, said it was “no surprise” that the highest levels of daily occupancy were recorded on Friday and Saturday, ahead of Memorial Day. All 50 states have begun re-opening at least some businesses and rolling back stay-at-home orders and other restrictions.

While hotel fundamentals are on the up, year-over-year figures show just how badly the industry has been battered by the coronavirus pandemic. Last week’s 35.4 percent occupancy rate marked a 50.2 percent plunge from a year ago. Average daily rate was down 39.7 percent and revenue per available room fell 69.9 percent year over year.

Fundamentals in many major markets are worse than the national averages, although four of the top 25 markets in the country — New York City, Tampa/St. Petersburg, Norfolk/Virginia Beach, and Phoenix — saw occupancy levels above 40 percent.

About 45 percent of hotel rooms in New York were occupied last week. RevPAR climbed about $2 to $54.47 and daily rate about 30 cents to $121.29.
Last week’s occupancy rate in the Los Angeles/Long Beach market climbed 2 percentage week over week to 37.8 percent. ADR and RevPAR also increased last week, hitting $105.88 and $40.04, respectively.

The state of California and local governments have rented rooms for vulnerable homeless locals throughout the pandemic as a way to safely house people and support a devastated hotel industry. More than 3,200 rooms have been rented in L.A. County alone, but logistical issues and personnel shortages have hampered the program.

Miami’s 29.3 percent occupancy rate was an improvement from 26.5 percent the week prior and the closest it’s been to 30 percent since the middle of April. ADR fell week over week to $80.50 from $81.15 a week earlier, but RevPAR climbed to $23.56 from $21.49 a week earlier.

Chicago went into the pandemic with a little over half of its rooms occupied and while last week was an improvement, the market is still performing poorly. Occupancy climbed 2 percentage points to 28.2 percent. ADR has been more or less flat at less than $72 all month. RevPAR improved last week to $20.19 from $19.17 a week earlier.

Oahu Island’s 12.7 percent occupancy rate was the lowest among major markets. But Orlando and Boston also had a bad week, with 22.5 percent and 22.8 percent occupancy rates, respectively.
 

David Goldsmith

All Powerful Moderator
Staff member

BD Hotels defaults on Watson Hotel mortgage
Lender HSBC is marketing the non-performing note for sale

The cracks are starting to show in New York City’s hotel market.
Richard Born and Ira Drukier’s BD Hotels — the largest boutique hotel company in the city — has stopped making payments on their mortgage on the 600-room Watson Hotel on Manhattan’s West Side, sources told The Real Deal.
Now, HSBC, which provided BD Hotels with a $42.5 million loan in 2011 to finance its leasehold on the hotel at 440 West 57th Street, is looking to sell the non-performing loan.
Representatives for BD Hotels and HSBC could not be immediately reached for comment. The loan matures April 1 of next year and has an unpaid principal balance of $33.9 million, according to marketing materials.
Brokers handling the loan sale are pitching it as an opportunity to easily reposition a hotel that is free from a managing or branding agreement. Alternatively, it could be torn down and redeveloped for other purposes.

“The property’s zoning allows an investor to reimagine the prime 57th Street frontage into multifamily or office space, neighboring some of the most coveted developments in the city,” a teaser for the loan explained.
Eastdil Secured is marketing the loan. The brokers could not be reached for comment.

Hotels across the city are feeling the effects of the Covid-19 induced shutdown, which ground tourism to a halt and forced many to shutter their doors and layoff staff.
While some lenders have been willing to offer forbearance to mortgage borrowers who are struggling to make payments, others are moving on from the troubled loans.

The tony Mark Hotel at 25 East 77th Street recently went into default, and the special servicer on the hotel’s $115 million commercial-mortgage backed securities loan scheduled a UCC foreclosure auction.
 

David Goldsmith

All Powerful Moderator
Staff member
TRD Insights: Hotel CMBS delinquencies jumped in June
Think loans backed by retail and mixed-use properties are bad? Look at lodging

Hotels’ occupancy rates have been rising, but their loan troubles are through the roof.
Hotel delinquencies among commercial mortgage-backed security (CMBS) loans rated by Kroll Bond Ratings Agency reached 21.6 percent last month, up from 13.6 percent in May. That was the highest among all property types, with delinquencies on loans secured by retail and mixed-use properties at 12.8 percent and 9.4 percent, respectively.

Even though hotel loan delinquencies spiked last month, there’s some evidence that they might begin to level off. The percentage of CMBS lodging loans whose borrowers were late on their monthly payments in June fell to 6.4 percent, down from 12.4 percent in May 2020. A payment made within the 30-day grace period is late but the loan is not yet delinquent.

Single-asset CMBS hotel loans appear to be faring better than portfolio loans. All three of the Kroll-rated single-asset or single-borrower and large loan transactions transferred to special servicers since the pandemic started were backed by portfolio loans. Those loans, totaling more than $2 billion, were secured by 186 hotels across the country owned by Atrium Holding Company, Hospitality Investors Trust and Tom Barrack’s Colony Capital.

For lodging conduit transactions, or CMBS transactions backed by loans from multiple borrowers secured by multiple lodging properties, the delinquency rate is even higher. Conduit loans secured by lodging portfolios saw delinquencies jump to 24.4 percent in June, up from 15.7 percent in May.

Many hospitality companies loaded up on CMBS debt in the years leading up to the current financial crisis. Just as the coronavirus hit the United States, outstanding hotel CMBS debt ballooned to $85 billion.
Now the companies are struggling to get loan modifications from their special servicers, many of which are overwhelmed by a tidal wave of requests for relief.
 
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