02/10/2010

Warner Shopping Four Seasons Hotel in NY

Investor Ty Warner is quietly marketing the trophy Four Seasons hotel in Midtown Manhattan.

The toy tycoon has held discussions with a select group of investors about an off-market sale of the 368-room luxury hotel. He is holding firm on pricing expectations of a whopping $1.75 million/room, or $644 million, according to people familiar with the discussions.

The 52-story property, on East 57th Street between Park and Madison Avenues, has taken its lumps during the market downturn, but remains one of the nation's best-known hotels and is sure to pique the interest of hotel players.

The property's occupancy rate averaged 58% in the 12 months ending last June 30, down from 72% in calendar year 2008, according to Realpoint. The average room rate dipped slightly, to $1,086 from $1,112, but revenue per available room fell to $635 from $798. That caused net cashflow to plunge to $14.7 million, from $30.6 million.

The Four Seasons Hotel New York, as it's formally known, isn't heavily leveraged. The property has $185.6 million of mortgage debt - well below the price being sought by Warner. But declining fundamentals have put the hotel under some pressure.

The debt picture is complicated by the fact that the Four Seasons is tied to a larger debt package that includes other Warner hotels. At the end of 2005, Warner lined up a $425 million securitized mortgage from Credit Suisse and pledged as collateral the Four Seasons in Manhattan and four other luxury resorts: the Four Seasons Biltmore in Santa Barbara, Calif.; San Ysidro Ranch in Santa Barbara; Las Ventanas al Paraiso in Los Cabos, Mexico; and Kona Village Resort on the Big Island of Hawaii.

Warner sold the Hawaiian property in 2007 and paid down the cross-collateralized loan to $344.6 million. A little more than half of that amount is allocated to the Four Seasons in New York. Warner's plans for the three other hotels in the portfolio are unknown.

While the portfolio's performance has suffered, the properties are still throwing off significantly more cash than needed to pay the mortgage's low rate, which is pegged to one-month Libor plus 201 basis points - or currently just 2.2%, thanks to the minuscule Libor rate. Last year, the net cashflow was three times the amount needed to cover the debt service, down from 4.25 times in 2008, according to a servicer report.

The Credit Suisse debt package matured in January 2009, but included two one-year extension options. Warner exercised the first option, which expired last month. Last September, Warner applied for the second extension. In October, the cross-collateralized loan was transferred to special servicer Capmark because it appeared that the loan might not meet the performance hurdles necessary to qualify for the second extension, according to a Realpoint report about the securitization (TW Hotel Funding LLC, 2005-LUX).

The second extension requires that the portfolio's minimum required debt-service-coverage ratio be calculated based on a significantly higher mortgage rate - 9.25%. The net cashflow from the properties must equal 1.4 times the amount needed to service the debt. But based on a 9.25% rate, the net cashflow was only 0.89 times the debt level when the extension was requested, Realpoint said. It's unclear if Warner was able to negotiate the second extension.

Warner, who amassed a fortune as the manufacturer of "Beanie Babies," acquired the New York Four Seasons in 1999 for $271 million. Some $86 million was spent on renovations and room upgrades between 2000 and 2005. The property has 9,600 square feet of meeting space, a restaurant, two lounges and a fitness center.

Luxury Manhattan hotels had a 77.7% average occupancy rate last year, down from 81.8% in 2008, according to Smith Travel Research. Daily room rates at luxury properties dropped by 21.2% to an average of $378.29, which pushed down revenue per room by 25%.

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