Ground Lease On Times Square Hotel Once Valued At $126M Sells For $4M
After years of sliding valuations and multiple auctions, the Gallivant Times Square Hotel has sold for a fraction of its previous value.
Special servicer LNR Partners sold the ground lease of the 334-room hotel at 234 West 48th St. to an LLC controlled by Mehran Kohansieh for $4M, according to records filed with the city last week.
Kohansieh also goes by Mike Kohan and owns Kohan Retail Investment Group. He told Bisnow that the company, which owns aging malls around the country, plans to keep the property as a hotel and “revitalize” it. LNR Partners acquired the ground lease for $9.5M after foreclosing on its previous owner, Investcorp.
The sale, announced with limited details by brokerage JLL last month, concludes years of mounting debt and several rebrands. CMBS tracking firm Trepp's remittance data suggests the liquidation proceeds for LNR were $2.5M. That sum “was completely eaten away by expenses,” Trepp wrote in a report Tuesday, which noted the hotel was appraised at $126M at securitization in 2006.
The latest appraisal for the property, which was a Best Western at securitization but briefly took on a Wyndham flag before going independent in 2016, was $21.7M last year.
The property is subject to a long-term ground lease, and payments were set to increase by 2.5% last month, according to a Moody's analysis of the CMBS loan.
"The property faces several deferred maintenance and repair issues. The property’s net operating income has been negative for several years," Moody's analysts wrote last month when the hotel was under contract. "Due to the continued underperformance of this property and current environment for hotels, Moody’s expects a significant loss from this loan."
Investcorp modified its $80M loan in 2014, according to the New York Post, which reported in 2018 the debt was at $79.6M with more interest and costs. Last November, The Gallivant was listed for sale through Ten-X Commercial with a starting bid at $5M, according to the marketing materials.
Kohan told Bisnow he didn't participate in the auction. Brokers for the hotel, who pitched the sale as an opportunity to acquire a hotel for below replacement cost, couldn't be immediately reached for comment.
“We have quite a few plans for the hotel to make it a much better destination. It’s a great location. There is no doubt when the hotel opens up, it will be a good source of tourism,” Kohan said. “It all depends on the market opening up.”
The coronavirus pandemic has made an already strained environment for hoteliers even more difficult, with some 200 hotels closing their doors during the pandemic. Six have officially closed permanently so far, per STR but there may be more to come as room rates remain sluggish and tourists absent.
Last August, Ashford Hospitality Trust sold the Embassy Suites by Hilton in Midtown it has owned for less than two years in order to meet demands from lenders. In December, the Tillary Hotel in Downtown Brooklyn, owned by Isaac Hager’s Cornell Realty Management and partners, filed a Chapter 11 petition in New York bankruptcy court. Vornado said this month it will not reopen the Hotel Pennsylvania, and instead plans to raze the property.
Representatives for LNR could not be immediately reached for comment.