Highgate acquires full control of Hell’s Kitchen hotel from David Werner in $275M transaction

Highgate Hotels through the entity 700 Eighth Owner LP acquired the ground leased fee position of the Row NYC hotel at 700 Eighth Avenue in Hell’s Kitchen, Manhattan, from David Werner Real Estate Investments through the entity 700 Milford Holdings LLC, in a deal valued at $275 million. At the same time, Highgate assumed a $275 million loan, so it appears there was no additional payment on top of the loan assumption. The hotel is one of two condominium units in the building, the other is a smaller retail unit owned by Paramount Group. Highgate and Rockpoint were already ground tenants under a lease running to 2112 with David Werner, the former landlord. With this acquisition, the ground lease was extinguished and Highgate owns the condo unit in fee simple.
The deal closed on May 31, 2024 and was recorded on June 6, 2024. The property has 460,273 square feet of built space according to a PincusCo analysis of city data. The sale price per built square foot is $597 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.)
David Werner bought the property on March 8, 2013, for $325 million. The signatory for David Werner Real Estate Investments was David Werner. The signatory for Highgate Hotels was William Graham Rumble. The contract date was May 31, 2024.

Highgate Hotels and Rockpoint Group were ground tenants to the hotel condominium unit. The fee owner of the hotel condo was David Werner, who was the borrower and subject to a $275 million foreclosure action from 2022 brought by the bondholders of the Morgan Stanley Bank of America Merrill Lynch Trust 2013-C9 September,  case 653442/2022. The parties discontinued the litigation on May 31, the same day they sold the property.

Rockpoint and Highgate in 2014 borrowed $160 million from Colony Capital, but that loan was discharged in 2020. Highgate Hotels made the purchase in care of Highgate Capital Investments.

The hotel has a complex ownership structure. In 2010, Highgate and Rockpoint bought the hotel in fee for $200 million, then on March 6, 2013, they formally divided the property into two condominium units, one for the retail and the other much larger one for the hotel. On March 7, 2013, Highgate and Rockpoint divided the hotel condo into a fee position and a leasehold position, with the lease running 99 years, until 2112.
The next day, March 8, 2013, Highgate and Rockpoint sold the fee position to David Werner Real Estate Investments, which Werner financed with the $275 million loan.
In March 2014, Highgate and Rockpoint sold the retail condo to Thor Equities for $64 million.

As part of the May 31 sale, Highgate assumed the $275 million loan and terminated the ground lease.

The Real Deal reported in March that David Werner was leading an effort to sell the property, asking $350 million.

Prior sales and revenue

Prior to this transaction, PincusCo has no record that the buyer Highgate Hotels had purchased any other properties and has no record it sold any properties over the past 24 months.
The seller David Werner Real Estate Investments purchased one property in one transaction for a total of $101 million and sold one property in one transaction for a total of $88.9 million over the same time period.

The property

The hotel condo in Hell’s Kitchen has 460,273 square feet of built space according to a PincusCo analysis of city data. The parcel has a total lot size of 460,273 square feet. The city-designated market value for the property in 2022 is $173.9 million. The most recent loan totaled $160 million and was provided by Colony Capital on June 4, 2018.

Violations and lawsuits

The property was involved in two lawsuits and zero bankruptcies over the past two years. The highest value suit was a $275 million commercial foreclosure concerning a loan filed on September 19, 2022, by Series 2013-C9 and Wells Fargo trustee against David Werner. In addition, according to city public data, the property has not received any significant violations in the last year.

The neighborhood

In Hell’s Kitchen, The bulk, or 39 percent of the 40.6 million square feet of commercial built space are elevator buildings, with specialty buildings next occupying 18 percent of the space. In sales, Hell’s Kitchen has 2.6 times the average sales volume among other neighborhoods with $701.9 million in sales volume in the last two years and is the 11th highest in Manhattan. For development, Hell’s Kitchen is the 9th most active neighborhood among other neighborhoods. It had 5.1 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.

The block

On this tax block, PincusCo has identified the owners of one of the seven commercial properties representing 1,721,814 square feet of the 1,912,846 square feet. The identified owner is Wharton Properties.
There are no active new building construction projects on this tax block.

The majority, or 90 percent of the 1.9 million square feet of built space are office buildings, with specialty buildings next occupying 10 percent of the space.

The seller

The PincusCo database currently indicates that David Werner Real Estate Investments owned at least three commercial properties with 133 residential units in New York City with 1,100,762 square feet and a city-determined market value of $401 million. (Market value is typically about 50% of actual value.) Within the portfolio, the bulk, or 88 percent of the 1,100,762 square feet of built space are office properties, with elevator properties next occupying 12 percent of the space. They are all located in Manhattan.

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