Rialto takes control of Distrikt Hotel in Garment District following $40M foreclosure

Rialto Capital Advisors as special servicer for RSS MSBAM2012-C5-NY 3PL LLC acquired the leasehold for the Distrikt hotel building (H2) at 342 West 40th Street in the Garment District, Manhattan, through a foreclosure auction as the credit bidder. Rialto foreclosed on a leasehold loan with a $40 million original principal that was given to to Scott Schroeder, Kevin Fee, and Victor Afonso in 2012.
The transfer closed on October 29, 2024 and was recorded on December 30, 2024. The property has 67,130 square feet of built space according to a PincusCo analysis of city data. The sale price per built square foot is $595 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.)
Scott Schroeder bought the property in May 2007 for $8.5 million, borrowing more than $25 million at the time. In 2010, the owners borrowed $40 million from Och-Ziff Capital Management Group, which in 2019 changed its name to Sculptor Capital Management. In April 2012, Schroeder executed a sale leaseback with Gould Investors, with Gould buying the fee and Schroeder signing a ground lease as tenant. Schroeder then refinanced that $40 million with a loan from Bank of America secured by their leasehold. The loan was securitized into a trust called Series 2012-C5. The fee is owned by Gould Investors and Georgetown Partners. Paul R. Sklar is the referee for the NYS Supreme Court for the ground lease foreclosure of the Distrikt Hotel under index 655136/2020. The ground lease is now owned by the bondholders of Series 2012-C5 as serviced by Rialto.
The transfer value in Acris was $100. PincusCo assigned the value $40 million, which was the 2012 loan.

The property

The hotel building in Garment District has 67,130 square feet of built space according to a PincusCo analysis of city data. The parcel has frontage of 33 feet and is 98 feet deep with a total lot size of 3,291 square feet. The zoning is C6-4 which allows for up to 10 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 $23 million.

Violations and lawsuits

There were no lawsuits or bankruptcies filed against the property for the past 24 months. In addition, according to city public data, the property has received seven DOB violations and $7,275 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 $1 million on this tax lot.

The neighborhood

In Garment District, The majority, or 69 percent of the 52.3 million square feet of commercial built space are office buildings, with hotel buildings next occupying 13 percent of the space. In sales, Garment District has 3.7 times the average sales volume among other neighborhoods with $925.7 million in sales volume in the last two years and is the 10th highest in Manhattan. For development, Garment District is the 5th most active neighborhood among other neighborhoods. It had 8.4 million square feet of commercial and multi-family construction under development in the last two years, which represents 16 percent of the neighborhood’s built space.

The block

On this tax block, PincusCo has identified the owners of 14 of the 31 commercial properties representing 1,080,689 square feet of the 1,572,885 square feet. The largest owner is Mack Real Estate Group, followed by Gehr Group and then Mcsam Hotel Group.
On the tax block, there were four new building construction projects totaling 100,300 square feet. The largest is a 120-unit, 44,430 square-foot hotel/dormitory/shelter (R-1) building submitted by Brian Law with plans filed September 10, 2015 and it has not been permitted yet. The second largest is a 25-unit, 19,255 square-foot residential (R-2) building submitted by Man Hei Li with plans filed May 15, 2019 and permitted May 25, 2022.

The majority, or 71 percent of the 1.6 million square feet of built space are hotel buildings, with office buildings next occupying 19 percent of the space.

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