Another Manhattan Hotel Trades for Bargain-Basement Price

Hotels in Manhattan continue to trade for bargain-basement prices as investors bet they’ll be able to turn a profit when tourism and business travel eventually resume at full strength in NYC.

Apollo Global Management and investor Newbond Holdings this week announced a deal to buy the Hilton Times Square for $85M, roughly 35% of the $243M California-based REIT Sunstone Hotel Investors paid to acquire the 478-room hotel in 2006.

Recent Manhattan hotel trades involving steep discounts include the Sheraton New York Times Square, which reportedly sold for half the price the owner paid when it was last acquired in 2006. MCR and Island Capital Group said they paid $373M for the Sheraton.

In a joint release announcing the sale of the 1,780-room Sheraton Times Square, MCR and Island Capital Group boasted that the deal was secured for “one of the lowest prices per guestroom paid for fee simple hotel real estate in Manhattan over the past 13 years.”

The Midtown DoubleTree on Lexington Ave. was sold by RLJ Lodging Trust to Hawkins Way Capital for $146M, a sale price less than half of what RLJ Lodging paid for the property in 2010; the Mandarin Oriental on Columbus Circle was sold in January for $98M, also a significant discount.

Hotels that haven’t changed hands also are having their valuations slashed: the venerable Empire Hotel on W. 63rd St. is now worth $173M, down from $393M in 2012, according to CMBS tracker Trepp.

The hotel sector was clobbered during the pandemic as business and leisure travel ground to a halt. Leisure travel has begun to rebound in Q1, but a recovery for business travel—the largest source of revenue for the US hotel industry—is not expected before 2023.

A report issued at the end of April by the American Hotel & Lodging Association and Kalibri Labs projects that US hotel business travel revenue will be 23% below pre-pandemic levels in 2022 and will end the year down more than $20B compared to 2019, GlobeSt.com reported.

Business travel—including corporate, group, government, and other commercial categories—is the US hotel industry’s largest source of revenue. During the past two years, the industry has lost an estimated $108 billion in business travel revenue.

“While leisure travel is expected to return to pre-pandemic levels this year, business travel will take significantly longer to recover,” the AHLA report said.

The report said that large urban markets, with hotels that rely heavily on events and group meetings, will disproportionately have larger shortfalls in business travel revenue this year.

The report projected that San Francisco will have the largest shortfall by percentage in hotel business travel revenue this year, with a total that is expected to amount to 55 percent less than 2019, a deficit of $2.5 billion.

According to AHLA, three other urban metro markets will bring in less than half the hotel business travel revenue they notched in 2019: New York City (55.3% below 2019 revenue, a $2.5B deficit), Washington DC (54.4% below 2019 revenue, a $1.5B deficit) and San Jose (51.8% below 2019 revenue, a $634M deficit).