Never say never
While most of the Marriott Corporations hotels are simple franchise agreements, they offered a lot of financial assistance and income guarantees to the new owners to gain the franchise:
MC's PRESS RELEASE
The Company has arranged for $190.0 million in first mortgage financing from Bank of America. The loan will bear interest at LIBOR plus 400 basis points, with a LIBOR floor of 75 basis points, and will be for an initial term of three years, plus two one-year extension options upon the satisfaction of certain financial and other conditions. The balance of the purchase price will be funded in cash. The company is evaluating joint venture options and other alternatives, including asset sales, as capital sources to fund the balance of this acquisition.
The Company has also signed a 50-year management agreement with Marriott International to rebrand the hotel as the JW Marriott Essex House New York. As part of the management agreement, Marriott will guarantee the net operating income of the hotel up to $21.5 million per year for a period of eight years, subject to a maximum funding by Marriott of $14 million in 2013 and $12 million in each year from 2014 to 2020. Total cumulative fundings by Marriott are capped at $40 million. Upon closing, Strategic Hotels plans to invest approximately $18.3 million in various property improvements, including renovations to various common areas, select systems upgrades as well as new signage and other branding efforts to distinguish the property under the JW Marriott flag.
Here's three interesting facts:
NY TIMES ARTICLE
At 509 rooms, the Essex House is smaller than it was when Strategic last owned it because 90 rooms have since been converted into condos. Even so, Strategic got the hotel back for $685,000 a unit, $45,000 less per unit than the 2005 selling price. Nine unsold condos also came with the deal, but those without views of the park will probably revert to hotel rooms, said Laurence S. Geller, the chief executive of Strategic.
KEY: of the 90 condos NINE were unsold and included in the deal
SAME NY TIMES ARTICLE
One way to increase revenue from the hotel would be to turn more rooms into condos. Mr. Geller said there is another advantage to this strategy. “At 500 rooms, I have to sell a lot of meetings,” he said. “At 400, I wouldn’t.”
KEY: from 500 to 400 is 100 hotel units that could be acquired and converted by MVW
OLD HOTEL FACT SHEET
St Regis Club Central Park South (Starwood H&R)
Situated on floors 19 to 39 (104 rooms) of the historic Essex House, this hotel on Central Park South is two blocks from Broadway and three blocks from Carnegie Hall.
KEY: 104 rooms
The hotel only converted to a JW in September, 2012. So they don't have a full fiscal year to evaluate the cost effectiveness of selling floors 19 to 39 or accurately weigh loss of future revenue vs ROI on sale.
On a MORE realistic note...
Marriott Corporation has owned the NY Clock Tower building since late 2011. At that time they announced a NY Edition, but it has still not opened. Wonder if they would sell the property to MVW or if MVW would approach MC???
