The troubled hotel at Battery Park City’s southern tip has changed owners. The former Ritz-Carlton, which was rechristened the Wagner Hotel in March, has been sold by developers Westbrook Partners (which bought the property in 2012) at a 25 percent discount from its recent asking price.
Shortly after acquiring the hotel from its original developer, Westbrook began shopping it to prospective buyers, asking $200 million. This price was based as the theoretical value of the 12-story hotel space, if it could be converted into condominium apartments.
But residents of the existing 120 condominiums on the upper 26 floors of the building balked at this plan, pointing out that the building’s ground lease with the Battery Park City Authority (BPCA) requires a “first-class hotel” to be housed in the structure’s base.
In 2017, the the board of managers for the condominium portion of the building announced to residents 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. (Simply put, we understand that if their plan is implemented, the Hotel will no longer be a Ritz-Carlton Hotel). The Westbrook representatives have not disclosed to us the name of the alternative hotel management company they hope to retain. 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.’ In addition, they advised us that their counsel will provide us with a memo discussing this transition.”
The assertion attributed to Westbrook, that they were not seeking to alter their ground lease, was contradicted by 2014 Battery Park City Authority (BPCA) documents reviewed by the Broadsheet. A memorandum from then-BPCA president Shari Hyman to Authority board members recounted, “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.”
“Westbrook has attempted to find other hotel operators to supplant the Ritz and has considered alternatives including operating a smaller hotel with some residential units, but they have been unsuccessful in getting any interest from other operators,” the memorandum continued. “Westbrook has mitigated their losses over the past year or so — from $10 million per year to $6 million per year — but they do not believe it will ever be profitable as a hotel.”
The document also noted that, “in order to move forward with the proposed 100 percent residential condominium conversion, Westbrook must amend its existing lease with the Authority to allow for the proposed conversion. Any vote by the Authority to approve any such amendments to the lease would likely best occur after Westbrook obtains consent from the Board for such conversion, and after any questions concerning use of the common elements are resolved. Westbrook, however, sought an indication from the Authority that such conversion will be approved subject to any conditions the Authority wishes to impose prior to Westbrook’s approach to their Board. This request was denied.”
Even as it was seeking cooperation 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 brokerage Eastdil Secured in 2015 enthused that, “investors will potentially have the opportunity to convert a portion of the Hotel into residential condominiums.” The same promotional material notes that, “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 was apparently a reference to the public plaza adjoining the Ritz-Carlton building, an amenity that was created in exchange for allowing the original developers to build higher. Any suggestion that this public space could be developed into another building was almost certainly false.
But residents of the Ritz-Carlton condominiums had other concerns, as well. They paid a premium for apartments located within a building that housed a luxury hotel, branded to a world-renowned chain. The removal of the Ritz nameplate from their building could negatively affect the value of their apartments. The possible closure of the hotel would have also deprived them of an amenity that many prized: the availability of hotel services within their apartment building. More ominously, the sudden sale of more than 100 additional, newly renovated apartments in the same building would likely exert serious downward pressure on the resale price of their own homes. And the year or more of construction required to demolish almost 300 hotel rooms and convert them into residential apartments (along with the dust and noise associated with such a project) might seriously diminish their standard of living.
But Westbrook pressed ahead, enticing prospective buyers with the possibility that the 298 hotel rooms could be converted into approximately half as many two-bedroom apartments and then sold as condominiums. Because units of that size in the upper portion of the building are now selling for more than $2 million each, this promised an ultimate payout of around $300 million for any developer willing to pay Westbrook’s asking price of $200 million, and who could then persuade the BPCA to allow the hotel to be closed and the space converted to apartments.
But the BPCA refused to offer the kind of assurance that would make such a sale possible. Indeed, rather than back away from the requirements of the ground lease, the Authority more recently moved to hire an independent consultant to evaluate whether Westbrook was complying with its terms.
This may have been the signal that motivated the developer to cut its losses. Its asking price recently dropped from $200 million to less than $150 million, which was met by Urban Commons, a Los Angeles-based development firm that owns hotels around the United States and is best know for operating the Queen Mary tourist attraction, in Long Beach, California. Persuading Urban Commons to buy the Wagner Hotel, however, required Westbrook to lend the buyer $96 million of the $147-million purchase price.
The hotel at the foot of West Street has struggled financially since the date it opened. Originally scheduled to debut days after the terrorist attacks of September 11, 2001, it did not launch until the following year. Although widely lauded for its high quality of accommodations and service, the Ritz-Carlton’s business prospects were further clouded by the 2008 real estate downtown and 2012’s Hurricane Sandy. More recently, the proliferation of hotel development throughout Lower Manhattan has deprived the facility of its onetime near-monopoly on luxury lodging Downtown.
(Visited 65 times, 1 visits today)