New Operator Takes Control of Former Ritz-Carlton Hotel
A years-long ordeal for the residents of the erstwhile Ritz-Carlton residences (at Ten West Street in Battery Park City) may be approaching a denouement. The drama began eight years ago, when ownership of the perennially troubled hotel housed within the building changed hands.
The 38-story building at the foot of Battery Place is divided between a 298-room hotel, which occupies the first 12 floors the structures, and a 120-unit condominium, which fills the upper 26 floors. The building was originally constructed by developer Millennium Partners. The hotel was initially scheduled to open days after the terrorist attacks of September 11, 2001, but did not launch until the following year. Although widely lauded for its high quality of accommodations and service, the hotel struggled financially, with the 2008 real estate downtown and 2012’s Hurricane Sandy further clouding its business prospects. In 2013, Millennium sold their interest in the hotel to Westbrook Partners.
Shortly after the transition, an announcement by the board of managers for the condominium portion of the Ritz-Carlton was circulated to residents, advising them that, “Westbrook Partners, the owner of the Ritz-Carlton Hotel Battery Park… intend to terminate their management agreement with the Ritz-Carlton Hotel Company and to retain an alternative management company for the Hotel… They claim that they are not seeking to amend the ground lease which, inter alia, requires the Hotel to be operated as a ‘first class hotel.’ ”
Immediately after the removal of the Ritz-Carlton name, the hotel closed. It reopened in 2018 as the Wagner Hotel (apparently named for the adjacent Wagner Park).
Westbrook’s assertion that they were not seeking to alter the ground lease was contradicted by 2014 Battery Park City Authority (BPCA) documents. A memorandum from then-BPCA president Shari Hyman to Authority board members noted, “we discussed in executive session the desire of Westbrook Partners, LLC and its partners to convert the Ritz-Carlton Battery Park City to a residential condominium. According to Westbrook, the Hotel was underperforming and operating at a significant loss. Specifically, since 2007, occupancy and average room rates have steadily declined as a result of increased competition, the recession, and the Hotel’s structure/star rating.”
Even as it was seeking permission (which was ultimately denied) from the BPCA to convert the hotel portion of the building into residential condominiums, Westbrook was also trying to sell its interest. Marketing materials compiled by the brokerage Eastdil Secured in 2015 enthused, “investors will potentially have the opportunity to convert a portion of the Hotel into residential condominiums.” The same promotional material noted, “the offering includes an adjacent parcel of land immediately to the south of the Property that could potentially be developed into an additional hotel or residential tower.” This appears to be a reference to the public plaza adjoining the Ritz-Carlton building, an amenity created in exchange for allowing the original developers to build higher. The suggestion that this public space could be developed into another building was false.
But residents of the Ritz-Carlton condominiums had other concerns that were more substantive. They paid a premium for apartments in a building that houses a luxury hotel, branded to a world-renowned chain. The removal of the Ritz nameplate from their building negatively affected the value of their apartments. The closure of the hotel also deprived them of an amenity that many prized: the availability of hotel services in their building. More ominously, the sale of more than 100 newly renovated apartments in the building would likely have exerted significant downward pressure on the resale price of their own homes. And the year or more of construction required to demolish hundreds of hotel rooms and convert them into residential apartments would have seriously diminished their standard of living.
As it turned out, Westbrook cuts its losses by chopping its asking price by 25 percent (to $150 million) and selling the former Ritz-Carlton Hotel to Urban Commons, a Los Angeles-based development firm that owned hotels around the United States and was best known for operating the historic ocean liner Queen Mary as a tourist attraction and hotel in Long Beach, California. But Urban Commons turned out to be in severe financial distress and stopped making payments on the $96 million loan Westbrook had given it to buy the property.
With the onset of the Covid pandemic in 2020, the Wagner Hotel closed and never reopened. This prompted condominium owners at the Ritz-Carlton residences to file suit, arguing that Urban Commons was in violation of multiple terms of its ground lease. These alleged violations included the requirement that the facility be branded to a world-class operator of premium hotels and resorts, that it be recognized as such by national ratings agencies, and that it be managed by a company that has a decade or more of experience overseeing at least five comparable hotels. Residents of the Ritz-Carlton condominium said that the Wagner’s substandard operation detracted from their quality of life and diminished the value of their homes.
In same year, Urban Commons was sued by multiple investors who alleged the firm’s executives promised them a 70 percent return on an investment of $750,000, which was earmarked for helping to bankroll the firm’s purchase of the Wagner Hotel. The investors claimed never to have received profits or payments of any kind, and said that the firm broke off contact when they demanded their money back. That autumn, the company was named by the New York State Department of Taxation and Finance as one of its largest business-tax delinquents, citing unpaid taxes of more than $392,000 related specifically to its operation of the Wagner Hotel.
The following May (around the time that the city of Long Beach evicted Urban Commons as the operator of the Queen Mary), the Fitch bond rating agency noted that the Wagner Hotel’s delinquency on ground rent and payments in lieu of taxes (both levies collected by the BPCA from property owners) contributed to $3 million in arrears owed to the Authority. In November 2022, Urban Commons declared bankruptcy.
In the midst of this drama, Arizona-based Silver Creek Development purchased from Westbrook the delinquent mortgage on the hotel, with an eye toward taking control of the property. When the ongoing financial meltdown at Urban Commons made clear that payment was a remote prospect, the new creditor began foreclosure.
“My client became both debtor in possession and lender,” explains bankruptcy lawyer Steven Smith, who represents Silver Creek. “We had to navigate between three sets of key players: the BPCA, who claimed to be owed tens of millions of dollars in arrears on ground rent payments and payments in lieu of taxes; the residents, who were living through a nightmare after the hotel was effectively abandoned five years ago; and the hotel union, who had claims related to their collective bargaining agreement.”
“We immediately aligned with the building residents to oust the former owners,” he says. “Once Urban Commons was gone, we appointed in their place an independent manager and restructuring chief.”
This led to a 2023 auction, in which Silver Creek functioned as both the seller and the winning bidder. “Silver Creek entered a bid of $78.5 million toward the mortgage,” Mr. Smith says, “plus an additional cash component to cover arrears owed to the BPCA, the residents, and the union, which brought the total value of the pack to $110 million.”
This was followed by 13 months of mediation, in which final terms were negotiated between the Silver Creek, the BPCA, building residents, and the hotel union. “Mediation is a common final step in this process, but this one took longer than any other in my 25-year career,” Mr. Smith says.
By last fall, there was one more hurdle to surmount. “The bankruptcy court approved the terms we had all agreed to, but it did not take legal effect,” Mr. Smith says. “Because the BPCA holds the lease on the land beneath the building, and because the Authority is subordinate to the City, we had to go through a ‘confirmation period,’ in which either could veto the deal. This was supposed to last for 90 days. It ended up taking another year.”
Ultimately, the sale officially closed in the last week of August of this year. “Everybody has now been paid what they were owed, and Silver Creek plans to reposition the space under a new flag for a luxury, prestige, quality hotel brand,” he says.