New York’s Times Square in Trouble for Novotel & Hilton, but Others Optimistic

Main Photo: The Novotel New York Times Square

Date: January 2021

Location: Times Square, New York City, NY, USA

Names: The Novotel New York Times Square and The Hilton Times Square… and others

No. of Keys: 480 and 476

Current Owners and Lenders: The Novotel New York Times Square hotel closed its doors permanently days before Christmas due to the coronavirus pandemic and laid off its entire staff, state records show.

The 480-room hotel at 226 West 52nd Street closed on Dec. 23, citing the “hotel owner’s decision to cancel the management contract” and cut its 225 employees, according to a state WARN Act notice made public on Wednesday.

Spokespeople for the Novotel’s manager, Accor, and owner, Millennium & Copthorne Hotels, did not immediately respond to requests for comment.

Paris-based hospitality giant Accor built the 35-story Novotel in 1984 and owned it until 2012, when it sold the spot to Apollo Global Management and Chartres Lodging Group for about $94 million. As part of the deal, Accor stayed on as the manager and the new owners embarked on a $118 million renovation of the property.

Apollo and Chartres sold the hotel two years later to London-based Millennium & Copthorne Hotels for $273.6 million in an all-cash deal, with Accor remaining on as the manager, Commercial Observer previously reported.

As the coronavirus pandemic kept travellers confined to their homes, the Novotel first shuttered its doors on March 15 and furloughed 137 of its workers, according to the WARN Act filing. It later laid off eight employees in July.

The Novotel joins a growing number of hotels around Manhattan that have permanently shuttered due to COVID-19. In September, the 44-story Hilton Times Square closed, and the next month, the landmarked Roosevelt Hotel in Midtown did the same.

As of September 2020, the latest numbers available, 58 percent of Manhattan’s 129,000 hotel rooms were still closed with 2,700 expected never to reopen, according to a report from PricewaterhouseCoopers.

Hotel occupancy fell to 32.5 percent for the week ending on Dec. 26, its lowest level since early May, and a 33 percent drop from the same time in 2019, according to STR.

The city went through a hotel building boom in recent years — growing from about 97,500 rooms in 2015 to about 138,000 before COVID hit — leaving many concerned about what will become of the large, empty buildings once closed.

“They employ lots of people, and they are a big part of our economy,” Councilman Keith Powers, whose district includes hotel hot spot Midtown, previously told CO. “They’re a foothold to the middle class for many New Yorkers. They’re a sector we rely on.”

….and in a separate story, Lender Might Take Over Troubled Hilton Times Square, the lender behind a loan for the shuttered Hilton Times Square, which announced this fall that it was closing permanently, might take over the 44-story, 476-key property at 234 West 42nd Street.

That is per special servicer comments in early December that indicate that the “lender is actively negotiating a settlement agreement with the borrower that contemplates a deed-in-lieu of foreclosure for the collateral by end of year 2020, along with a settlement payment.” In a deed-in-lieu foreclosure, the borrower hands the asset to the lender. The hotel is backing a $75.795 million loan with the collateral ground lease interest, according to research firm Trepp, which also reported the special servicer comments.

Bank of America originated the loan. KeyBank National Association is the master servicer, and Torchlight Investors LLC is the special servicer. Sunstone Hotel Investors owns the Hilton Times Square. Sunstone and Torchlight did not return requests for comment. It’s unclear what might happen to the ground lease or to the hotel itself should Bank of America receive control.

“Settlement discussions with the borrower are ongoing,” Trepp’s research on the loan said (the last update from the research firm was dated Dec. 11). “Lender has used best efforts to obtain an appraisal, but has been unable to obtain a reliable valuation given the underlying issues around the ground lease.”

COVID has also complicated things, as it has for so many hotels around New York City. A few hotels have closed permanently, and others are operating with occupancy rates far, far below what they enjoyed pre-pandemic. In the case of the Hilton Times Square, occupancy went from north of 80 percent of rooms filled per night to under 5 percent.

On the financing side, too, things are dire. In November, nearly half of commercial mortgage-backed securities loans made against New York-area hotels were in special servicing, according to Trepp.

Compounding things further, dozens of hotel owners are facing a historic $500 million payout to displaced hospitality workers. That’s after an arbitrator reached a decision in November in a dispute between a trade association for owners and the New York Hotel and Motel Trades Council.

Sunstone made its last payment on the Hilton Times Square loan in April, and the loan was transferred to special servicing the month before. The owner announced via a WARN Act Notice that it was closing the 20-year-old inn permanently in October. According to Trepp, though, it’s still “operational.” Its phone line and website are no longer active, however.480

Buyers: Could be You!

THPT Comment: Like the rest of the world, especially major cities…even with great locations like Times Square, lenders are getting nervous. To foreclose now is perhaps foolhardy…who/what are you going to do with the property…turn it over to residential? I think not…. and yet we have one major owner, who is confident that Times Square’s fabulous high occupancy in good times, will return especially with the vaccine breakthrough…”just hold your nerves fellers” and the cost of money is at an all-time low. If you wish to buck the trend and BUY now call us!

First Seen: Commercial Observer: Novotel and Commercial Observer: Hilton

The Hotel Property Team (THPT) is a small group of highly experienced business professionals. Between us, we provide a range of skills and experience which is directly relevant to those involved in the hotel property market.

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