Fire Sale of Manhattan Hotels Still Smoldering

For the second time this year, Watermark Lodging Trust is selling a Manhattan hotel at a loss.

The hospitality unit of the Chicago-based investment firm Watermark Capital has sold the leasehold interest in the Courtyard by Marriott at 307 W. 37^th St. to Barings in a $73.7M transaction.

Watermark bought the leasehold for the 224-key hotel in 2014 for $95M. The ground lease runs through 2044.

In June, Watermark sold a 225-room Holiday Inn in Chelsea to Two Kings Real Estate for $80.3M, a 30% discount over the $113M the Chicago firm paid for the property in 2013.

Buyers have been snapping up hotels at bargain prices in Manhattan this year, betting they’ll be able to turn a profit when tourism and business travel regains its full strength in NYC.

In May, the 1,780-room Sheraton New York Times Square, sold for half the price the owner paid when it was last acquired in 2006. MCR and Island Capital Group paid $373M for the Sheraton. In a joint release announcing the sale, MCR and Island Capital boasted that the deal was secured for “one of the lowest prices per guestroom paid for fee simple hotel real estate in Manhattan over the past 13 years.”

The 24-story, 866-key Hudson Hotel on West 58^th Street was sold by Eldridge Industries in May to Montgomery Street Partners for $207M. In July, CSC Coliving agreed to a 99-year lease with Montgomery and announced plans to convert the shuttered 362K SF hotel into multifamily with 438 units.

Manhattan hotel trades involving bargain-basement prices this year include the Midtown DoubleTree on Lexington Ave., which was sold by RLJ Lodging Trust to Hawkins Way Capital for $146M, a sale price less than half of what RLJ Lodging paid for the property in 2010; the Mandarin Oriental on Columbus Circle was sold in January for $98M, also a significant discount.

The hotel sector was clobbered during the pandemic as business and leisure travel ground to a halt. Leisure travel has rebounded this year, but a recovery for business travel—the largest source of revenue for the US hotel industry—is not expected before 2023.

A report from the American Hotel & Lodging Association projected that business travel will lag 23% below pre-pandemic levels in 2022 and finish the year down more than $20B compared to 2019, GlobeSt reported.

Increases in occupancy, ADR and revenue per available room continued to accelerate across Manhattan during the first half of 2022, according to a report from PwC. Q2 RevPAR experienced a year-over-year increase of 166.8 percent, with the strongest gains in April, which experienced a year-over-year increase of 220.4 percent.