No sale price disclosed but future home to two Marriott brands was financed with $185M in debt
By Adam Pincus
One of the city’s most prolific hotel development firms, McSam Hotel Group, is in contract to sell a 570-room, newly constructed Garment District hotel for an undisclosed price to Magna Hospitality Group.
Once closed, the transaction will almost certainly be one of the biggest sales of 2019. While the price is unknown, the property with an address of 338 West 36th Street, between Eighth and Ninth avenues, has $185 million in debt provided by Deutsche Bank. If it sold for just the debt, which is extremely unlikely, it would have been the fifth most expensive Manhattan hotel sale last year.
The 26-story building was given its initial temporary certificate of occupancy last month, which is the city’s nod allowing tenants and customers to enter the building. The building will be home to two Marriott brands, the Commercial Observer reported in 2016, a Marriott SpringHill Suites on the top half of the building and a Marriott Fairfield Inn & Suites on the lower half.
The Rhode Island-based Magna is a frequent dealmaker with Sam Chang’s Great Neck-based McSam Hotel Group. On December 28 last year, McSam sold a hotel development site at 140 West 24th Street in Chelsea that was permitted for 510 rooms to Magna for $113 million.
Hotel insiders said even as hospitality sales are uneven now, they are expected to increase in areas of Midtown and Brooklyn that are set to come under a heavy hotel development restriction, so existing buildings and sites could become relatively more valuable.
“There is still an overhang of supply that will cause a little bit of turbulence in the market,” Jay Morrow, a director at brokerage firm Hodges Ward Elliott, said. He was not involved with the 36th Street transaction. “But on the back end, in the long term, Manhattan lodging is strong.”
Hotel sales were up in 2018 compared to 2017, a review of city transaction records showed, but much of that was driven by the sale of a stake in the hotel and retail project 701 Seventh Avenue that’s valued at $1.5 billion, and the $600 million purchase of the hotel portion of the Plaza Hotel.
Brokerage firm CBRE reported in a recent hotel analysis that the building’s Midtown South submarket had more than 7,500 room in the construction pipeline as of the third quarter of 2018. But even with all that product slated to come on line, the revenue per available room rose in the first nine months of 2018 to $197.71, compared with $189.10 in the same period a year earlier.
Chang signed the contract to sell the 36th Street building on August 30, 2018, city records show, four months before he closed on the sale to Magna at 140 West 24th Street. The 36th Street sale is expected to close in early March, a person familiar with the transaction said.
Magna did not respond to a request for comment and Chang declined to comment.
The 26-story hotel has an average room size of approximately 294 square feet, calculated by dividing the building’s 168,024 square feet by the 570 units. The building, designed by frequent Chang collaborator, architect Gene Kaufman, also includes a bar/lounge and dining area with both indoor and outdoor seating, Department of Buildings records show.