The Next CRE Casualty: Union Square's W Hotel

Tyler Durden's picture

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lizzy36's picture

Tyler, didn't you take your hopium this morning?

Kicking the can down the road is merely an extension of "hope as a strategy". 

Happy day's are here again.......

lizzy36's picture

andy, i was being facetious. 

totally in your camp.

curbyourrisk's picture

Didn't anyone learn from the Japanese who tried to buy up Manhattan last time someone was fluch with money?  There is only one Peter Minuit!

texpat's picture

Where THE FUCK is the upside on $1million per room?


Miles Kendig's picture

That would depend on the props for the discerning business traveler.

E Thomas St.'s picture

2800 a night 365 a year seems to justify it. Wait, you're telling me that at current rates the highest rate I can book right now is 799 a night? File this under Cash Flow Disasters.

Anonymous's picture

aw man that sucks, that place has a great bar and they make some awesome tots to snack on. not to mention some of the girls at the underbar....blow your mind.

Gilgamesh's picture

Wunderbar, miss that place.  Still hot, hey?

j0sh1130's picture

starwood still runs the W regardless of how poorly the investment performs for isithmar.

Miles Kendig's picture

Catastrophe - Defined as a situation that can yet be successful with additional energy & resources.

svendthrift's picture

Where will the hipsters go to show off their skinny jeans?


Anonymous's picture

For a million a room they need to provide Spitzers "friends".

A Man without Qualities's picture

Last time I stayed in that place back in 2006 and it felt like I'd been mugged.  Everything, not just the porn, was charged as extra.   I arrived to stay for a week, after a 12 hour flight in the pouring rain.  I had a smoking room and asked if there was somewhere to get cigarettes.  The porter said there was a place right across the street and offered to go over and pick up a packet.  Seemed like a decent offer, but they charged me $10 extra for collecting them and the guy still wanted a tip.  Everything in the room was wrapped in cellophane and unless you looked very carefully you would not notice there was a price tag. Breakfast was extra, just about the only included thing was the hot water. 

Anyway, it looked like a serious attempt to maximize cashflow, even with the risk of permanently pissing off the clientele.  So, no surprise they were in the process flogging it to a bunch of dumb Arabs and no surprise the bookings are sharply down.  I for one, would never go back. 

Gimp's picture

They would have to charge $2,000+ a night per room to have any chance of breaking even. That price is even high for the big apple. 

Anonymous's picture

Love the place tho.

I always stay at the W, wereever I go.

Green Sharts's picture

Based on the information here, the $14.8 million in cash flow for 2008 wasn't enough to cover interest on both the senior mortgage and high yield mezzanine financing.  The senior mortgage interest is $7.5 million annually and the mezzanine loan is $117M versus $115M for the senior mortgage and presumably at a significantly higher interest rate.  If the mezzanine loan is at 10%, the annual cash flow required to service both mortgages would be $19.2 million.

If the cash flow is currently running at $8 million annualized and a buyer would pay an 8% cap rate the hotel is worth $100 million versus a purchase price of $285 million.  The $53 million in equity is wiped out, the mezzanine financing is wiped out and the senior mortgage is worth $.87 on the dollar.

How would they deal with the senior mortgage which was securitized as part of a pool of mortgages?  I'd guess they have to dump the hotel for whatever they can get to pay off the bond holders when the senior mortgage comes due in October, 2011.  A bank could take the property on their books but I'd think it would be hard to impossible to get a bunch of owners of a securitized pool of commercial mortgages to carry the property.  Is that correct?

We've been reading about the banks potentially playing extend and pretend with commercial real estate, but it seems to me that the underwater commercial properties that are part of securitizations will have to be dumped on the market over the next 2-3 years as the notes come due.

Who are the big owners of private placements of mezzanine financing like this, hedge funds or the CALPERs of the world?