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May 02, 2018  

Marriott on NY's East Side Up for Sale Again

The New York Marriott East Side hotel in Midtown Manhattan is back on the block.

The 655-room property, at 525 Lexington Avenue, is owned by Ashkenazy Acquisition of New York and German fund operator Deka Immobilien. They have given the listing to Colliers International.

This is the second time that the duo is attempting to sell the hotel and the fourth time it has been up for sale since 2012. The valuation is unclear, but market pros expect the property to fetch less than the $270 million, or $412,000/room, that the Ashkenazy team paid for it in 2015.

Manhattan has since struggled to absorb a heavy pipeline of new hotels. Over the past few years, the added supply depressed occupancy and room rates in some hotel categories.

Financials for the Marriott East Side were unavailable, but per-room revenue at comparable upper-upscale hotels in the surrounding Midtown East submarket is rebounding following two years of decline, according to STR.

In the first two months of the year, such hotels were 75.6% occupied, up from 71.4% a year earlier. Room rates climbed almost 2% to an average of $192.14, elevating per-room revenue almost 8%, to $145.32. But that’s still below the $166.05 average for per-room revenue in the first two months of 2014, according to STR.

The drop in performance has put downward pressure on Manhattan hotel values. Several newly listed properties are expected to fetch less than the owners paid earlier in the cycle. That has created a buying opportunity for investors confident in the market’s resilience.

The New York Marriott East Side, which opened in 1924 as the Shelton Towers Hotel, has a Romanesque Revival facade. It was designed by architect Arthur Loomis Harmon, whose firm also designed the Empire State Building and other Manhattan landmarks. Marriott International of Bethesda, Md., took over the hotel’s management in 1990.

The property was formerly owned by Morgan Stanley Real Estate’s Prime Property Fund. The open-end vehicle acquired it in 2005 — then with 646 rooms — from Strategic Hotels & Resorts of Chicago for $287 million, or $444,000/room. After conducting a $24 million renovation, the open-end fund unsuccessfully shopped the property in 2008 and 2012. It subsequently added nine rooms and in 2015 struck the sale to the Ashkenazy team. The partners tried to market the hotel the following year, but no sale resulted.

To boost revenues, a buyer could renovate the guest rooms and reposition some street-level retail space. The hotel has a fitness center, 16,000 square feet of meeting space and outdoor spaces. Some rooms have balconies.

The property is between East 48th and East 49th Streets, amid a cluster of hotels, including the Waldorf Astoria New York, which is closed for renovations.

A completed sale would be the largest U.S. hotel deal ever brokered by Colliers, according to Real Estate Alert’s Deal Database.