Sonder Signs at Jeff Sutton’s Planned Midtown Hotel for Under $300M (Updated)

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Jeff Sutton’s Wharton Properties just scored Sonder as its tenant at the real estate mogul’s planned 363-room hotel and retail building at 25 West 34th Street, Commercial Observer has learned.

Sonder — the apartment, hotel and short-term rental provider — is paying under $300 million to occupy the majority of the proposed 26-story, 176,375-square-foot building for 15 years, according to a source with knowledge of the deal. The multimillion-dollar transaction comes even as the pandemic has hampered both the hospitality and retail industries.  

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The Midtown property is currently home to a 16,000-square-foot retail building, previously leased to clothing retailer Superdry. Wharton filed a permit in April to convert the property to a hotel with a ground-floor retail space and rooftop amenity floor, as CO previously reported. Under the deal, Wharton would still control the retail portion of the project, the source said.

Sutton declined to comment and Sonder did not respond to a request for comment.

Retail businesses were hit hard by the pandemic, with well-known brands like Century 21, Lord & Taylor and JCPenney filing for Chapter 11, but the hospitality asset class didn’t fare much better. Normal occupancy rates for New York City’s hotels aren’t supposed to return to pre-pandemic levels until 2025 and many shuttered during the pandemic — with the state passing a bill to allow converting some underused hotels into residential housing

Even during this time, Sonder managed to go public via a special purpose acquisition company (SPAC) merger that valued the company at $2.2 billion in April, CO reported. The company offers short-term stays with a focus on a younger clientele comfortable with navigating their visit via a phone app, which allows Sonder to keep costs down. Sonder lists its rentals on its own website, Airbnb and Expedia Group’s Vrbo and has expanded into the hotel market as well. 

Sonder reopened the Flatiron Hotel in April after leasing it from Premier Equities, which bought the 64-unit 9 West 26th Street building out of bankruptcy in 2019. It also snagged its first Brooklyn outpost in Gowanus in June after inking a lease for the entire 29,000-square-foot, 76-room Gowanus Inn & Yard, located at 645-651 Union Street.

Sutton’s company hasn’t fared so badly either. While Wharton Properties did sell off property last year, none of Sutton’s 120 properties around the city were threatened by repossession or foreclosures.

Celia Young can be reached at cyoung@commercialobserver.com.

Clarification: This article was updated with a headline that reflects that Sonder is paying Wharton Properties.