Starwood Preferred Guest - W Hotel Union Square is facing imminent default

heard on the street.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aGFzBPlONG6o

Did you read the article? It says the debt is at moderate risk of default. Given that the W Scottsdale had much bigger problems and worked out a solution combined with the fact that the NY hotel market is in a much better place than it was in the 1st half of the year, the risk of default is certainly not imminent.
Many hotels would be happy to have only a moderate risk of default.

Did you read the article?

it says: The loan has been placed on Realpoint’s watchlist and a special servicer, LNR Partners Inc., has been appointed, Innaurato said. Servicers are used when a loan is in or near default and needs to be reviewed or modified, according to Innaurato.

Relax, everybody.

The key information is here:

The borrowers of the loan backed by the W New York Union Square are up to date with their payments and the value of the property, which was renovated in 2000 for about $75 million, is higher than the debt, said Frank Innaurato, managing director of CMBS analytical services at Horsham, Pennsylvania-based Realpoint. The loan matures in October 2011.

and

For the six months through June 2009, the hotel’s debt coverage ratio was 1.08, net cash flow was $8 million and occupancy was 93 percent, Realpoint said. In the 12 months through December 2008, the debt coverage ratio was 1.98, net cash flow was $14.8 million and occupancy 74 percent. In June 2008, the hotel’s average daily rate was $469.46 and revenue per available room was $413.78.

In addition to the $115 million loan, the property had $117 million in mezzanine debt, Realpoint said.



The biggest question in my mind is whether that debt coverage ratio is only on the $115mm mortgage, or on both the mortgage plus the mezzanine debt. If it's on the combined, then there's NOTHING to worry about.

If it's on the mortgage only, then ownership (Istithmar -- the Dubai investment entity) would probably need to come up with about $5mm (assuming 11% coupon on the mezz - just a guess) per year to pay interest on the mezz -- and that's based on the stats for the first half of 2009, which seems to have been the bottom of the market, the hotel managed to stay in the black.

So, as long as the hotel is generating enough cash to pay its bills, they have 2 years to figure out how to refinance. And, again, with an owner who can afford to write a check, paying down the mezzanine out of pocket won't be a big issue (compared to losing it in a foreclosure).

I don't care if the underlying financial arrangement needs to be modified, or frankly if the property needs to be included as part of a reorganization of the ownership as long as:

1) It stays operating and
2) Retains Starwood as the management company

This is a GREAT property and my favorite Starwood in NYC. I'd hate to see anything happen that would take it out of the system. That being said, as others have indicated, the thread title is probably more dramatic than the actual financial situation warrants.

it's another "Chicken Little" thread title. Thanks a lot.

it's another "Chicken LIttle" thread title. Thanks a lot.

I don't blame the OP. If you didn't know much about finance, quotes like, "The loan has been placed on Realpoint’s watchlist and a special servicer, LNR Partners Inc., has been appointed, Innaurato said. Servicers are used when a loan is in or near default and needs to be reviewed or modified, according to Innaurato" would make you think that default is likely or imminent. Bloomberg could have written a better article, IMO.

I don't blame the OP. If you didn't know much about finance, quotes like, "The loan has been placed on Realpoint’s watchlist and a special servicer, LNR Partners Inc., has been appointed, Innaurato said. Servicers are used when a loan is in or near default and needs to be reviewed or modified, according to Innaurato" would make you think that default is likely or imminent. Bloomberg could have written a better article, IMO.

I tend to agree with LIH Prem on this one. It states very clearly in the article that "has a moderate risk of default “given the asset’s weak financial performance and declining hotel fundamentals nationally” " and also "The borrowers of the loan backed by the W New York Union Square are up to date with their payments and the value of the property, which was renovated in 2000 for about $75 million, is higher than the debt"

The title of the thread says it is imminent while the article makes it clear enough that it is not imminent and that currently the payments are up to date, but there is concern if this continue along the current trend, nothing mentioning imminent!

On page B6 of today's NY Times (NYC edition), there's a legal notice for the public sale of 100% of the membership interests in Istithmar Hotels Union Square Mezz 2 LLC, which owns 100% of the underlying interests in the W Union Square. The same date is given as December 8, 2009.

Basically, this is a foreclosure by a second-priority mezzanine lender; the buyer will own the hotel subject to (a) the mortgage, and (b) the senior mezzanine lender.

I don't know anything about whether the *wood brand is subject to cancellation on any sale, or anything else relevant. It's possible that the sale could be cancelled before it's date; since a "mezz foreclosure" has many fewer legal steps that need to occur first, lenders will run these notices earlier in the game than a foreclosure notice would run.

On page B6 of today's NY Times (NYC edition), there's a legal notice for the public sale of 100% of the membership interests in Istithmar Hotels Union Square Mezz 2 LLC, which owns 100% of the underlying interests in the W Union Square. The same date is given as December 8, 2009.

Basically, this is a foreclosure by a second-priority mezzanine lender; the buyer will own the hotel subject to (a) the mortgage, and (b) the senior mezzanine lender.

I don't know anything about whether the *wood brand is subject to cancellation on any sale, or anything else relevant. It's possible that the sale could be cancelled before it's date; since a "mezz foreclosure" has many fewer legal steps that need to occur first, lenders will run these notices earlier in the game than a foreclosure notice would run.

Wow...great pickup CO FF. Hopefully this either doesn't make it all the way to a public sale, or if ownership turns over, it remains within the Starwood portfolio.

I'm sure that Starwood won't have any public commentary on the matter until the financial / ownership matters are resolved.

...I'm sure that Starwood won't have any public commentary on the matter until the financial / ownership matters are resolved.

<cue the sound of crickets chirping on a summer eve>

Best regards,

William R. Sanders
Online Guest Feedback Coordinator
Starwood Hotels & Resorts Worldwide

guest.forum@starwoodhotels.com

<cue the sound of crickets chirping on a summer eve>
That is absolutely hilarious. I've never heard it before, so if it's original it's brilliant. If it's borrowed, then kudos.

That is absolutely hilarious. I've never heard it before, so if it's original it's brilliant. If it's borrowed, then kudos.

Often rendered simply as <Crickets>

;)

Lurker --

Can't you find a link that actually has crickets chirping?

It would be so appropriate! ;)

<cue the sound of crickets chirping on a summer eve>



OK, I did it for you! :)

http://www.youtube.com/watch?v=CQFEY9RIRJA

Thanks for the update on W Union Sq..
from an OP who didn't know much about finance and do chicken little dance.

Thanks for the update on W Union Sq..
from an OP who didn't know much about finance and do chicken little dance.

hahaha, you got lucky, apparently.

Lovely conversation. I can only hope that the possible change of ownership will not affect the customer experience.

I didn't think the article was that misleading. If anyone wants more background on companies like Nakheel there's some information in the Economist: http://www.economist.com/businessfinance/displaystory.cfm?story_id=14753834

anyone interested in buying distress hotels can read about some primitive strategy used by Conrad N. Hilton after the Great Depression..

I didn't think the article was that misleading.


I don't believe anybody said they thought the article was misleading.

-David