New York Outperforming Other Markets
Wall Street Journal reports: Seven years after paying $215 million for Manhattan's Park Central Hotel, a venture of Goldman Sachs Group Inc. has sold the 934-room property for $396 million to LaSalle Hotel Properties.
Sounds like a happy ending, right? Well it was for the Goldman venture, but not for some of the lenders that became involved in the deal.
Riding the real-estate boom, Goldman piled $465 million of debt on the 1920s-era hotel near Carnegie Hall. That enabled Goldman to take out all its equity and at least $150 million in profit, people familiar with the deal said.
But the debt was based on what turned out to be an overexuberant valuation. The Park Central continued to generate enough cash to stay current on debt service thanks to the fact that much of its debt had a low adjustable rate. But the music ended when all the debt came due last year, and the Goldman venture wasn't able to pay off all the creditors from the sale.
Similar scenarios are expected to play out this year, especially with commercial borrowers who, like homeowners that took out huge second mortgages, used lofty valuations to overleverage their real estate.
Manhattan hotel values are clearly below the records they hit during the boom years. But the New York market is outperforming those in other parts of the country.
In the 12 months through the third quarter of 2011, the price per hotel room acquired in Manhattan rose 20% from the year-earlier period to $440,454, according to global commercial property research firm Real Capital Analytics. The peak price was $628,815 paid in the fourth quarter of 2006.
View the full article on Wall Street Journal: New York Outperforming Other Markets
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Posted by: Nina Turner