Dune Pitches Hotel-to-Office Conversion in NY
A luxury hotel in Midtown Manhattan that traded just last year is being pitched as an office conversion play.
A Dune Real Estate partnership bought the 697-room W Hotel New York, in the tony Plaza District, for $190.3 million, or $273,000/room. The partnership planned to spend tens of millions of dollars on renovations and promptly rebranded the property as the Maxwell Hotel, part of Starwood Hotels & Resorts’ Tribute Portfolio brand.
But a sudden change in city guidelines subsequently created the option of redeveloping the site into an office building with up to 800,000 square feet of space. That has dramatically increased the property’s estimated value, to about $280 million. So the Dune group is now shopping the 18-story building, on the east side of Lexington Avenue between East 49th and East 50th Streets.
Cushman & Wakefield is representing Dune and its partners, Capstone Equities and Highgate Hotels. The three New York firms bought the property in May 2018 from Host Hotels & Resorts of Bethesda, Md.
At the time, a city regulation prevented more than 20% of the rooms at Manhattan hotels with more than 150 rooms from being converted to other uses. After a lawsuit challenging the rule’s constitutionality was filed, the city let the measure lapse this summer.
Now, the sales pitch is that a buyer could tear down the existing building and construct an office tower that would command top rents. The maximum allowable size would depend on zoning bonuses, but bidders have been told it would likely be 725,000-800,000 sf.
The property is at 541 Lexington Avenue in the Plaza District, a portion of the Midtown East submarket of Midtown Manhattan. The 26.7 million-sf Plaza District has an average asking rent of $110.16/sf, well above the $84.15/sf level in Midtown, according to Newmark.
Cushman notes that new office properties in Midtown East are commanding some of the highest rents in the city. That includes the skyscrapers under construction at One Vanderbilt Avenue and 425 Park Avenue.
The marketing campaign is also touting the site’s full-block footprint along Lexington Avenue as another selling point. The site is across from the Waldorf Astoria luxury hotel, which Anbang Insurance of China is converting to residential condominiums.