Jones Lang LaSalle (JLL) has been retained on an exclusive basis to arrange the sale of an approximately $30.0 million non-performing senior loan (the "Loan"). The lender originated the Loan in December 2017 with an initial balance of $31.0 million ($235k/key). The Loan is non-recourse with standard bad boy carveouts and a carry guaranty for debt service and operating expenses. The Loan was originated senior to a $15.0 million mezzanine loan made by an unrelated party.
The Loan defaulted and was accelerated in April 2020 and is currently under a forbearance agreement whereby the borrower agreed to waive defenses to a foreclosure and agreed to pay contract interest pursuant to the terms of the forbearance agreement. The situation provides a unique opportunity for an investor to acquire the Loan with a foreclosure judgment in hand, which provides a path to acquire the fee simple asset.
The Loan is secured by a first lien mortgage on the borrower's fee simple interest in a 132-key full-service hotel located in the Midtown South in the heart of the Manhattan borough of New York, NY (the "Collateral" of "Property"). The 13-story hotel was initially constructed in 1903 and most recently renovated in 2015 and features both fitness and business centers, a leased food and beverage component (150 person seating capacity), a lobby coffee bar (30 person seating capacity), and three leased mezzanine retail spaces. The hotel offers a total of 132 guestrooms: (55) King, (32) Double/Double, (23) Queen, (11) King with Sofa, (11) Queen/Queen. The Property closed its doors in March 2020 due to the coronavirus pandemic. The Collateral is currently unencumbered by a franchise and is subject to a union labor agreement.
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The Property and Loan were performing Pre-COVID which portends to a quicker path to recovery once the hotel re-opens.
The Loan’s last dollar sits at an attractive basis for Midtown South at $225,394 per key. The per key basis is well below the average cost to acquire hotels in Manhattan which has been north of $500,000 over the past 20 years.
PATH TO RECOVERY
The Loan provides investors with a potential quick path to recovery by stepping into the current lender’s foreclosure proceeding with a judgement in hand.
CHANGING MANHATTAN MARKET
NYC has consistently achieved occupancy and ADR levels far superior than the US average with an average RevPAR premium of 185% from 2009 to 2019. With the anticipated permanent hotel closures and conversions, the overall Manhattan supply is expected to decrease by over 5-10% resulting in supply compression and RevPAR growth.