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More Bad News For Dubai As Istithmar Loses Foreclosure Auction For Union Square W Hotel

Tyler Durden's picture




 

The WSJ reporting that Istithmar, the investment arm of Dubai's royal family, has lost the foreclosure auction for the Union Square W Hotel, which as we pointed out a month ago was the most likely next CRE casualty. The winner: mezzanine specialist LEM Capital. We wish them all the best. Presumably this means the bottle service at the Underbar has all but dried up. Do you see what happens Larry when the bouncer doesn't rotate the B&T crowd to keep the banker-folk happy? And this happening even with all-time record bonuses? Travesty.

In more serious news, and as we speculated this weekend, look for the Mandarin Oriental Columbus Circle hotel to be the next foreclosure property, which just so happens is another Istithmar property, as is Times Square Six.

Some more on the crumbling hotel CRE situation from the WSJ:

Dubai World's private-equity arm Istithmar made a last ditch effort to keep
control of the W Hotel Union Square in Manhattan in a foreclosure auction on
Tuesday but ended up losing the property that it acquired in a
top-of-the-market investment.

The 270-room hotel was acquired by LEM Mezzanine, a private-equity fund
affiliated with Lubert-Adler Real Estate Funds, which holds the junior-most
portion of $117 million in so-called mezzanine debt, or the part that fills
the gap between the first mortgage and a borrower's equity.

At the auction held at the New York office of law firm Allen & Overy, which
represents LEM, the fund initially was bidding $2 million for the debt, while
Istithmar was bidding $2.1 million subject to certain conditions. But after
behind-closed-door talks, LEM emerged as the winner.

The 21-story, full-service hotel is suffering from reduced business and
leisure travel amid a weak economy. In September, the $115 million first
mortgage, which was packaged and sold as commercial-mortgage-backed
securities, or CMBS, was transferred to a "special servicer" in charge of
handling troubled loans due to imminent default. Istithmar at the time blamed
the declining hotel market in New York, which caused room rates to fall almost
$100.

Realpoint, a credit-rating agency, estimates that the hotel is now worth
$137.5 million, even less than the first mortgage.

In addition to the W Hotel, Istithmar also owns Mandarin Oriental in
Manhattan. The hotel was valued at $340 million when Istithmar bought a 73%
stake in 2007. Since then, with occupancy rates falling, its annual cash flow
plunged to $3.6 million from about $21 million, according to Realpoint. Now
the hotel is worth $123 million, also less than its outstanding debt.

The foreclosure comes as Dubai World, the government-owned fund, is
struggling with a mammoth debt load. As a result of its debt crisis, Dubai
World is expected to sell some non-core assets including Central Park South
landmark the Jumeirah Essex House, and the Knickerbocker Hotel in Times Square
as it asked for a six-month freeze of its debt.

 

 

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Tue, 12/08/2009 - 12:41 | 156601 ShankyS
ShankyS's picture

Dig the chemtrails behind the bulidings. Nice!

Tue, 12/08/2009 - 13:16 | 156628 Anonymous
Anonymous's picture

Keep an eye on the City Center project in Las Vegas. A multi-billion dollar joint venture of MGM/Dubai World. Could it open and close in the same month?

Tue, 12/08/2009 - 13:23 | 156634 Anal_yst
Anal_yst's picture

Bloomberg had an article yesterday about how Mandarin Oriental is apparently sitting on some $560mm of cash (with what, ~$300mm debt), and is opportunistically looking at deals.

I'm going to go out on a limb here and guess they may be interested in picking this sucker up at a big discount/auction...

Tue, 12/08/2009 - 13:23 | 156635 ghostfaceinvestah
ghostfaceinvestah's picture

Thanks, I was wondering about Essex House, I remember when that converted to them, they spent a ton of money upgrading it.

Tue, 12/08/2009 - 13:27 | 156638 Anonymous
Anonymous's picture

Did anyone catch the Bloomberg interview out of Dubai last night that suddenly "lost its satellite feed"? The guy was talking about how the government would not be backing Dubai World debt, only debt related to infrastructure like airports, etc.

Tue, 12/08/2009 - 13:30 | 156641 Anonymous
Anonymous's picture

Did anyone catch the Bloomberg interview out of Dubai last night that suddenly "lost its satellite feed"? The guy was talking about how the government would not be backing Dubai World debt, only debt related to infrastructure like airports, etc.

Tue, 12/08/2009 - 13:41 | 156650 Anonymous
Anonymous's picture

Just an average joe here, but does anyone else wonder how you get a current value of 123M on a property w/ a cash flow of 3.6M? "Value" according to ?? I've been negative since 2006, but if this is the new "normal", now I'm just plain scared sh!tless...

Tue, 12/08/2009 - 14:34 | 156728 VegasBD
VegasBD's picture

I suppose mark-to-fantasy goes both ways.

Tue, 12/08/2009 - 14:36 | 156733 Anonymous
Anonymous's picture

3% capitalization rate? I had the same conclusion/question...as a distressed CRE investor this asset would have to drop significantly before it would hit my radar screen. Throw out the replacement cost value!

Wed, 12/09/2009 - 16:06 | 158193 legman
legman's picture

You are saying that a CAP rate of 3% in this market doesn't make sense to you? Hmmmm .... you must have gone to NYU or one of the normal schools. Probably never used that filty word "pro-forma" either. You are right ... you are a regular Joe ... and thank God for it!

Tue, 12/08/2009 - 13:43 | 156653 10044
10044's picture

Wait a min, does this mean Barneys is also toast?

Wed, 12/09/2009 - 16:10 | 158200 legman
legman's picture

Nawww! Barney's will be picked up by General Dollar and they will resurrect the old man and go back to selling great suits at 70% off retail (in my dreams).

Tue, 12/08/2009 - 13:53 | 156666 Anonymous
Anonymous's picture

Assuming the debt relationship of the Mandarin Oriental was economically sound to begin with*, if the income falls from 21 million/yr to 3.6million/yr I see no reason not to revalue as follows:

360 million / 5.833333 (the ratio of present income to income at time of prior valuation) =

$61,714,320.97

SOOOOOoooo...

By my estimation the present value of the Mandarin hotel
to be economically viable is somewhere in the ballpark of

61.7 million give or take a bit.

Of course, this is assuming that the 3.6 million/yr remains as the new 'gold standard' of yearly earned income for the Mandarin Oriental.

-MobBarley

Tue, 12/08/2009 - 13:53 | 156667 msorense
msorense's picture

Don't tell any of this to DRV or SRS - negative almost all day!!  What will it take to get these suckers to make a move?  Move up not down for once?

Tue, 12/08/2009 - 14:20 | 156710 stockoperator
stockoperator's picture

SPG

Tue, 12/08/2009 - 13:54 | 156669 contrabandista13
contrabandista13's picture

Do you see what happens Larry when the bouncer doesn't rotate the B&T crowd to keep the banker-folk happy?

B&T....?  I thought that was bankers and turds..... Oh yeah.... Duh....


Tue, 12/08/2009 - 13:56 | 156672 Careless Whisper
Careless Whisper's picture

Let it crash! Let Manhattan RE crash because I'm a buyer at the right price - and you should be too. If you don't "get it" then watch this short video and you will understand why Manhattan RE is the best investment in the world - if you have the staying power.

http://www.youtube.com/watch?v=m_saI-4mdIw

 

Tue, 12/08/2009 - 14:11 | 156697 contrabandista13
contrabandista13's picture

Re Manhattan RE:

 


"This building boom isn’t a great expression of design and architectural excellence. It’s a massive speculation to relieve bankers of their bonuses, and bankers’ money is sterile. It buys peace and quiet and second-rate ideas. New York is a city that was built out of risk and danger, with much more poverty and failure than riches and success. Fund managers kill the thing they crave. They want to buy their way into excitement and that old promise of the New York vista, but they drive it out and make it extinct. The final, unpalatable, zero-tolerance truth is that hedge-fund managers, bankers, cynical architects, and insecurity-exploiting designers are far more damaging to the unstylized life of a city than all the junkies, prostitutes, panhandlers, urban cowboys, bag ladies, homeless, and graffiti kids they replace."

A. A. Gill is a V.F. contributing editor and the author of A. A. Gill Is Away (Simon & Schuster).

"

Wed, 12/09/2009 - 16:13 | 158204 legman
legman's picture

Damn! That's as good as it gets as analysis.

Tue, 12/08/2009 - 14:10 | 156695 Anonymous
Anonymous's picture

is it just me, or has anyone realized that Dubai is pretending to deefault as part of a pre-arranged strategy with inside investors? It is a stretch to say the "news" is "bad" for Dubai when they created the storm clouds and lightening show that will allow dozens of recently completed projects to be paid for... by outside investors/debt holders.

Tue, 12/08/2009 - 17:04 | 156981 Anonymous
Anonymous's picture

Careless Whisper, I dont get it. What is the point of the video and NY real estate. Rome also collapsed. And never recovered.

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