Cindat Seeking Pref Equity Investment for Manhattan Hotel Portfolio
Cindat USA and Hersha Hotels & Resorts are seeking roughly $50 million in preferred equity for a seven-property Manhattan hotel portfolio, Commercial Observer has learned. JLL Hotels and Hospitality is leading the request on behalf of the partnership.
Cindat and Hersha invested in the non-union,select service portfolio — which comprises 1,087 rooms — in 2016 for a total purchase price of $571.4 million, or $526,000 per key. The portfolio includes Candlewood Suites in Times Square, Hampton Inn Chelsea, Hampton Inn Madison Square Garden, Hampton Inn Times Square South, Holiday Inn Express Times Square, Holiday Inn Express Wall Street and the Holiday Inn Wall Street. Each of the properties were then renovated post-acquisition, in 2017.
The portfolio backs the UBSCM 2018-NYCH CMBS transaction. Per Trepp data, the $300 million loan on the property — originated by UBS and China Merchants Bank in February 2018 — was transferred to the loan’s special servicer, Situs Holdings, on April 30. Mack Real Estate Credit Strategies also holds a $85 million mezzanine position.
The most recent servicing commentary provided by Trepp states that the senior note is currently delinquent for the payment due July 9, and that the mezz loan is also delinquent. Officials at UBS and MRECS weren’t immediately available for comment on Friday afternoon.
“New York City has been adversely affected by COVID and most of the assets are open, but several are closed,” Kevin Davis, a senior managing director in JLL’s Hotels & Hospitality Group, told CO. “As a result of the challenges in the portfolio, Cindat has made a request to modify the existing loan, which includes a senior loan as well as a mezzanine loan. We’re continuing to negotiate with the lenders to arrive at a solution — which we think is definitely achievable — but in order to execute the solution, the Cindat team would like to bring in third-party capital to help complete the transaction. So, we’ve decided to go to the market to raise third-party capital, and the new joint venture would invest in the properties in conjunction with a loan modification and extension.”
“Part of the discussion with the new capital will be finalizing a business plan,” Davis continued. “It’s possible that some capital could be used to renovate the assets, but some of the capital could go towards a modest loan pay-down and the posting of reserves to cover operating shortfalls for the foreseeable future.”
The preferred equity opportunity has been very well received , Davis said: “There’s a tremendous amount of interest in New York from both domestic and global investors, and since this transaction was announced we’ve gotten calls from U.S. private equity, U..S high net worth and family office capital, hotel owner-operators and European, Middle Eastern and Asian investors.”
The hotel sector has inarguably taken a beating during COVID-19. The restaurant, bar and hotel industry saw a decline of 439,800 jobs, or 43.9 percent, from July 2019 to July 2020, according to the federal Bureau of Labor Statistics. And only earlier this week, CO learned that the 44-story Hilton Times Square in the heart of Manhattan is closing in October.
That said, the New York market has shown unparalleled resilience following economic downturns, Davis noted, demonstrating more than 30 percent RevPAR growth in the subsequent years. Additionally, JLL anticipates a significant decrease in Manhattan hotel supply, resulting in favorable long-term market dynamics.
“We think New York is well positioned for a powerful rebound over the next 24 to 36 months,” he said. “Part of that is tied to the fact that we expect at least 20 percent of the hotels in New York City not to reopen. The reduction in supply, coupled with the expected pickup in demand, should result in incredibly strong operating performance in the future.”