REO- Wagner Hotel, Manhatten New York

[Chris Terborg]

EXECUTIVE SUMMARY:

Asset Investment Management, LLC purchased the leasehold interest in the Ritz-Carlton Battery Park in New York City, a 298-room luxury hotel on the lower 14 floors of a 39-story mixed-use residential condominium tower, in 2018. While built relatively recently in 2001, it presented an undervalued purchase with a quick way to maximize income by simply switching brands, which was not an option until 2017. A prior effort to market the property was unsuccessful in 2015 precisely because it remained encumbered by the Ritz brand, which is economically not viable. The transaction also contains highly-valuable vacant land in front of the building in the open air patio area.

5-star properties in New York typically transact for over $1.3 MM per key. At a huge discount to market, and a discount of 65% of the first and second debt, and 35% of equity, the total cost per key is well below both comparable sales and replacement cost.

MISBRANDED:

This was one of the assets within a portfolio deal of 13 Ritz-Carlton hotels. This property was ill-suited for the Ritz brand. The rates were simply not high enough to sustain the Ritz-Carlton level labor costs in New York City, but were high enough to be very profitable under other available brands, including within Marriott. At a $500 ADR and with occupancy rates in the low 90%s, this hotel would easily achieve $15 to $20MM in NOI upon stabilization (using conservative efficiency to the bottom line).

BRAND CONVERSION OPPORTUNITY:

An ideal and most logical solution is to convert to the Marriott Luxury Collection, which will enjoy the same rate and occupancy but at much higher efficiency due to the lower service and labor requirements. Converting within the same family will also reduce the ramp-up period. Further, Luxury provides much greater flexibility and will allow us to lease out the restaurant to another operator, eliminating a high number of union workers and generating safer and more consistent cash flow for the property.

ADDITIONAL LAND:

New York parcels are extremely valuable, and an adjacent piece of land – currently used as patio space – provides investors with the opportunity to develop an additional structure, upon securing entitlement. This entire region is based on land-lease and it is the only region that allows condominium entitlement on land-lease. As condominiums or apartments of over 75,000 sq. ft., the opportunity is lucrative enough to bring the end capitalization rate down substantially. Applying a conservative $10-20MM to the incremental development opportunity simply adds to the already exceptional capitalization rate on the stabilized hotel component.

PROPERTY SUMMARY:

The Ritz-Carlton Battery Park was constructed in 2001 as a Five Diamond Award winning hotel featuring 298 oversized guestrooms. Designed by Handel Architects and the Polishek Partnership, the 39-story tower is comprised of the Hotel on the lower 14 floors with 26 floors of residential condominiums above. The Property juxtaposes the historic charm of Downtown with its contemporary architecture and upscale amenities. Its highly visible location, where Battery Park City meets Battery Park, offers guests access to all of Downtown’s major attractions including the Statue of Liberty, Ellis Island, the World Trade Center Memorial and Wall Street. Benefitting from the redevelopment of Downtown, which has caused a migration of many corporations to the area as well as an unprecedented increase in tourism, the Ritz-Carlton is well positioned for both leisure and business travelers.

The oversized lobby creates a warm and impressive entrance to this well-maintained asset. The guestrooms contain a multitude of upscale amenities including designer finishes, an abundance of light and air and high definition LCD televisions. The large average room size of 491 square feet makes travelers feel at home, while 57% of these rooms boast gorgeous views of the Statue of Liberty and New York Harbor through large floor to ceiling windows.

LOCATION:

Nestled at the southern tip of Manhattan, about 100 yards from the harbor, the Property offers guests a tranquil New York hotel experience. The Hotel sits on the southernmost parcel of Battery Park City, a 92-acre planned community owned by the Battery Park City Authority (“BPCA”), a public benefit corporation created by New York State in 1968. Benefitting from its waterfront location, 7.2 MM square feet of housing, 9.3MM square feet of commercial space and over 36 acres of park space, today Battery Park City is one of Manhattan’s most amenity rich mixed use neighborhoods. Guests of the Hotel have access to a multitude of historic and cultural attractions that surround the Property. The departure point for tours of Ellis Island and the Statue of Liberty is right around the corner. Also nearby are the Museum of Jewish Heritage, the Museum of the American Indian, the Staten Island Ferry and the 25-acre Battery Park. The Hotel is also within close proximity to a number of public transportation options. The Bowling Green station, with access to the 4/5 express train, is just a block away while the 1 and R are accessible just a few blocks north on Rector Street.

FOOD AND BEVERAGE:

The Hotel’s restaurant features a spacious and elegant atmosphere with floor to ceiling windows that look out onto Battery Park. The expansive restaurant space can currently seat 121 diners including a large bar with stool seating. A new owner can rebrand 2West, convert all or a portion to retail space, or choose to expand the restaurant through the conversion of an adjacent portion of the lobby that is currently being used as a lounge. Other under-utilized space that is available to be converted into revenue generating food and beverage outlets includes the Ritz Club Lounge and the approximately 1,400 square foot meeting space that once served as the Hotel’s Rise Bar. The Rise Bar space includes a large outdoor terrace and three rooms featuring floor to ceiling windows and panoramic views of the Statue of Liberty and New York Harbor.

AMENITIES:

The Hotel features numerous other luxurious amenities and services, including:

Fitness Center:

The Hotel offers a 2,500 square foot, state-of-the-art fitness center with locker rooms. The fitness center is recently renovated and features cardiovascular and strength training equipment, a weight room and incredible panoramic views of the New York skyline & Harbor.

Business Center:

The Property includes a fully equipped business center with high-speed Internet access, color copier, fax and administrative services.

CAPITAL EXPENDITURES:

Historical capital improvements have kept the Hotel maintained to five-star standards. In 2010, new health club equipment and cardio vascular machines were purchased, meeting rooms’ walls and carpets were renovated and all common bar/ lounge areas including the 14th floor Rise were renovated. In 2011, an additional $600,000 was invested in ballroom and meeting rooms, including all new chairs and entertainment/ media technology. 2012 projects included new computers throughout the Property as well as a brand new phone system. The rooms are in good condition and were renovated in 2009.

Property was appraised in 2019 for $267,M. same appraiser now said that property worth about or over $330,M. Property has been foreclosed by the lender due to the last buyer didn't perform.