Extell in negotiations to ground lease BD Hotels’ Hotel Wellington property in Midtown West

UPDATED: 5:47 p.m., Oct. 20, 2022: Gary Barnett’s Extell Development is in late-stage negotiations to ground lease BD Hotels’ Hotel Wellington property at 871 Seventh Avenue at the corner of West 55th Street in Midtown West, Manhattan.

The New York Post reported in December 2021 that the hotel owners had invoked a demolition clause, which forces tenants to vacate. An additional document filed along with the ground lease included a price, $94.45 million, but it is unclear what the figure represents.

In the deal, Extell as tenant and BD Hotels as landlord are in negotiations to complete a 148-year ground lease that runs to April 2170. There was no dollar value assigned to the ground lease.

The property has 207,700 square feet of built space and 14,678 square feet of additional air rights for a total buildable of 222,400 square feet according to PincusCo analysis of city data, but that is before any additional air rights considerations. The price per built square foot is $454 and the price per buildable square foot is $424 per the PincusCo analysis. (The price per square foot analysis is the transaction price divided by square feet as reported in public records and assumes no air rights have been sold.)
The signatory for BD Hotels was Richard Born. The signatory for Extell Development was Gary Barnett.

Extell is considering a hotel and suites for a new building that would replace the existing hotel on the site, a source familiar with the project said.

In a similar deal, Extell in May 2022 as tenant executed a ground lease with the Feil Organization as landlord covering a large development site in Downtown Brooklyn, as PincusCo first reported, and Extell also is holding the debt on a large potential development site on the West Side owned by Robert Gans. PincusCo in May 2022 was the first to report Extell was a partner on the debt. A ground lease offers advantages over a traditional sale, including saving on transfer taxes and on borrowing costs.

BD Hotels and Extell did not immediately respond to a request for comment.

Prior sales and revenue

Prior to this transaction, Pincusco has records that the buyer Extell Development purchased 34 properties in six transactions for a total of $1.1 billion over the past 24 months.
The seller BD Hotels had not purchased any other properties and sold one property in one transaction for a total of $35.1 million over the same time period. The hotel owners according to the Department of Housing Preservation and Development include Richard Born, head officer and Ira Drukier, officer. The business entity is Wellington Hotel Co.

The property

The 859 7th Avenue parcel has frontage of 125 feet and is 175 feet deep with a total lot size of 22,240 square feet. The lot is irregular. The zoning is C6-6 which allows for up to 15 times floor area ratio (FAR) for commercial and up to 10 times FAR for residential with inclusionary housing. The city-designated market value for the property in 2022 is $92.3 million.

Violations and lawsuits

There were no lawsuits or bankruptcies filed against the property since September of 2020. In addition, according to city public data, the property has received one DOB violation and $5,900 in OATH penalties in the last year.

Development

There are no active new building construction projects or major alteration projects with initial costs more than $5 million on this tax lot.

The neighborhood

In Midtown West, the majority, or 73 percent of the 77.7 million square feet of commercial built space are office buildings, with hotel buildings next occupying 13 percent of the space. In sales, Midtown West has the 5th highest sale turnover among other neighborhoods in the city with $2.1 billion in sales volume in the last two years. For development, Midtown West is the 2nd most active neighborhood among other neighborhoods. It had 9.8 million square feet of commercial and multi-family construction under development in the last two years, which represents 13 percent of the neighborhood’s built space. There was one pre-foreclosure suit filed among other hotel buildings in the past 12 months.

The block

On this tax block, PincusCo has identified the owners of five of the 13 commercial properties representing 1,032,520 square feet of the 1,830,389 square feet. The largest owner is J.P. Morgan Asset Management, followed by Zucker Organization and then Savanna.
On the tax block, there was one new building construction project filed totaling 75,083 square feet. It is a 75,083-square-foot office (B) building developed by Eric Desimone with plans filed March 28, 2017 and permitted December 20, 2017.

The majority, or 43 percent of the 1.5 million square feet of built space are office buildings, with elevator buildings next occupying 28 percent of the space.

The seller

The PincusCo database currently indicates that BD Hotels owned at least 17 commercial properties in New York City with 1.3 million square feet, including 14 hotels such as the Hotel Chelsea, the Ludlow, the Jane and others. They are all located in Manhattan.

The buyer

The PincusCo database currently indicates that Extell Development owned at least 88 commercial properties in New York City with 4,191,052 square feet and a city-determined market value of $1.2 billion. (Market value is typically about 50% of actual value.) The portfolio has $4.9 billion in debt, with top three lenders as Guggenheim Partners, Blackstone Group, and Prudential Credit Opportunities respectively. Within the portfolio, the bulk, or 30 percent of the 4,191,052 square feet of built space are rental condo properties, with specialty properties next occupying 26 percent of the space. The bulk, or 97 percent of the built space, is in Manhattan, with Brooklyn next at 3 percent of the space.

Correction: A prior version of this story reported there was a memorandum of contract to buy the property. That is not accurate, according to sources familiar with the project, the transaction in negotiation is a ground lease.

Direct link to Acris document. link