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February 05, 2020  

Manhattan Hotel's Distressed Debt Pitched

The Manhattan hotel once billed as the “Lullaby of Broadway” is back for a repeat performance as a distress play.

Colony Credit Real Estate is looking to sell a nonperforming $315.2 million package of senior and mezzanine debt backed by the leasehold interest in The Row, a 1,331-room hotel near Times Square that was formerly known as Milford Plaza.

Eastdil Secured is marketing the debt, which can be acquired at a “significant discount” to its face value, according to marketing materials. A buyer could seek to restructure the debt with the property owner — a joint venture between Rockpoint Group and Highgate — or try to take control of the hotel.

Rockpoint, of Boston, and New York-based Highgate picked up the hotel in 2010 for $250 million. The previous owner had shuttered it for renovations, and it remained closed as the recession took hold.

The Rockpoint team carved the property into three components — the hotel, its retail space and the underlying land. In 2013, New York investor David Werner bought the ground for a whopping $325 million. A year later, Thor Equities paid $65 million for the 26,000-square-foot retail condominium, which encompasses a food court and several stores.

Meanwhile, the Rockpoint team completed a sweeping $160 million renovation of Milford Plaza, with financing from New York REIT NorthStar. Colony inherited the debt when it bought out NorthStar in 2017.

The New York hotel market has struggled recently with a wave of new supply that has dragged down room rates and revenue in four of the last five years. Revenue per available room is projected to drop again this year, according to STR. Hotel owners with hefty debt packages have struggled to balance rising expenses against the dip in revenue.

The Rockpoint team stopped making interest payments in March 2018 and the loan was placed on nonaccrual status, according to Colony’s most recent quarterly filing. The owners attempted to shop the hotel a year ago, with expectations that bids would reach around $200 million, but a sale never materialized.

The hotel is unencumbered by brand and management agreements. It’s subject to a 92-year ground lease, but there are multiple buy-back options starting in 2023.

While The Row is a full-service hotel, the restaurants are separately owned, which makes its operating expenses more akin to a select-service property. Financials were unavailable, but upper-midscale hotels in the Midtown West market were 91.5% occupied in 2019, down from 92.2% the year prior, STR figures show. Rates dropped 3.5% to $187.80/room, which ultimately pushed revenue down 4.2% to $171.75/room.

The 28-story hotel, at 700 Eighth Avenue, has long drawn business from tourists visiting the Theater District. It opened in 1928 as the Lincoln Hotel, and was renamed Milford Plaza in the 1980s by its then-owner, the Milstein family. The hotel was popularized with a series of catchy television commercials featuring the “Lullaby of Broadway” song.