Hawkins Way, Varde pay $153.4M to Deka for hotel in Midtown East

Hawkins Way Capital and Varde Partners through the entity 525 Lexington Owner, LLC,  paid $153.4 million to Deka Immobilien through the entity Lexington Avenue Hotel, L.P. for the 655-room hotel building (H1) at 525 Lexington Avenue in Midtown East, Manhattan.

As part of the acquisition, Madison Realty Capital provided a $166.5 million acquisition and rehabilitation loan.
The deal closed on January 27, 2023 and was recorded on February 6, 2023. The property has 406,261 square feet of built space according to PincusCo analysis of city data. The sale price per built square foot is $377 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.)
Deka bought the property on May 1, 2015, for $270 million. The signatory for Deka Immobilien was Enda Bracken and Simona Vigneron. The signatory for Hawkins Way Capital and Varde Partners was Karan Suri.

The total sale price was $154 million, the price of the real estate alone was $153.4 million.

According to a release, “The 1924-built hotel encompasses 655 rooms over 35 floors, including a conference floor, with a total of approximately 406,261 ft2. The hotel rooms were last renovated in 2007. The landmarked building is located on an estimated 21,500 ft2 corner lot.”

The brokers on the deal included the JLL hotel team co-leader Jeffrey Davis as well as JLL chairman of New York investment sales, Robert Knakal.

The property is likely going to be used for student housing, a source familiar with the transaction said, an investment vertical Hawkins Way is pursuing.

Prior sales and revenue

Prior to this transaction, PincusCo has records that the buyer Hawkins Way Capital purchased one property in one transactions for a total of $146 million and has no record it sold any properties over the past 24 months.
The seller Deka Immobilien had not purchased any other properties and had not sold any properties over the same time period. The former owners according to the Department of Housing Preservation and Development includes Bret Matteson, head officer and Deka Immo Bilie Deka (A Berman Bank), shareholder. The business entities are Marriott Hotel Services, Inc and Lexington Avenue Hotel Lp.

The property

The 525 Lexington Avenue parcel has frontage of 140 feet and is 145 feet deep with a total lot size of 22,425 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 $87.3 million.

Violations and lawsuits

The property was involved in one lawsuit and zero bankruptcies over the past two years. The suit was a $53 million commercial foreclosure concerning a loan filed on February 9, 2021, by DekaBank against Ashkenazy Acquisition. In addition, according to city public data, the property has received $900 in OATH penalties in the last year.

Development

For the tax lot building, it received its initial certificate of occupancy on August 9, 2012. 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 East, the majority, or 81 percent of the 61.6 million square feet of commercial built space are office buildings, with hotel buildings next occupying 7 percent of the space. In sales, Midtown East has the 2nd highest sale turnover among other neighborhoods in the city with $3.4 billion in sales volume in the last two years. For development, Midtown East is the most active neighborhood among other neighborhoods. It had 15.1 million square feet of commercial and multi-family construction under development in the last two years, which represents 24 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 one of the 11 commercial properties representing 443,607 square feet of the 2,461,203 square feet. The identified owner is Constellation Hotels Holding Limited.
There are no active new building construction projects on this tax block.

The majority, or 64 percent of the 2.4 million square feet of built space are office buildings, with hotel buildings next occupying 36 percent of the space.

The buyer

The PincusCo database currently indicates that Hawkins Way Capital owned at least two commercial properties in New York City with 120,378 square feet and a city-determined market value of $27.8 million. (Market value is typically about 50% of actual value.) The portfolio has $188 million in debt, borrowed from G4 Capital Partners and CIM Group. Within the portfolio, the bulk, or 75 percent of the 120,378 square feet of built space are hotel properties, with office properties next occupying 25 percent of the space. They are all located in Brooklyn.

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