According to Bloomberg and The Real Deal, the owners of the Crowne Plaza Hotel in Times Square have filed for bankruptcy.
Is this the first major piece of commercial real estate to fall in the wake of the “work from home” revolution due to covid?
In an effort to revive the struggling and lawsuit-riddled company, the corporate owners of the recently renovated Crowne Plaza Hotel in Times Square filed for Chapter 11 bankruptcy protection on Wednesday, according to Bloomberg and TheRealDeal. • According to court documents, the owners, who are ultimately owned by affiliates of Vornado Realty Trust, will attempt to sell themselves out of bankruptcy or repay creditors with reorganised equity (The case is Times Square JV LLC, 22-11715,U.S. Bankruptcy Court for the Southern District of New York).
A complex ownership structure and a “burdensome” licencing agreement with InterContinental Hotels Group have plagued the building at 1601 Broadway for years. Additionally, Covid-19 compelled the hotel to close until November of current year, according to court documents.
TRD reports that Andrew Penson’s Argent Ventures, which just took possession of the 46-story tower in the middle of Times Square by defeating office giant SL Green in court and taking the place of Vornado Realty Trust, intends to restructure the hotel’s finances. Penson “elbowed his way” into the high-profile property by paying a hefty discount for the mezzanine debt that Vornado had defaulted on.
According to bankruptcy records, the debt totals $526 million and includes the 795-room hotel, 196,300 square feet of office space, and 17,800 square feet of retail space. Senior and mezzanine lenders are owed $519 million, which is nearly all of that amount. Senior debt with an outstanding balance of $418 million has been past due for almost three years as of April 2020.
When Covid arrived in March 2020, the hotel, which is located on floors 15 through 46, had already closed. It reopened only a month ago, which is far too late to preserve the financials. While New York City tourism has significantly recovered, the pandemic’s impacts continue to be felt in the sector’s employment, which is still lower than it was in 2019.
A total of 88,000 square feet, or 45%, of the office space at 1601 Broadway is still unoccupied due to the “work from home” office crisis. The hotel provided laid-off staff with $7.5 million in severance pay, plus an additional $5.2 million in severance that was mandated by a last-minute de Blasio government law and that Argent, Vornado, and hotel operator Highgate Hotels agreed to divide equally.
“Portions of the Debtors’ Signage Component have remained vacant for months and others continue to display advertisements for parties that are not paying monthly rent,” Richard J. Shinder, president of the bankrupt entities, said in court papers.
“The operating costs associated with servicing meeting spaces and providing food and beverage exceeded the revenues from such activities,” Argent claimed in its bankruptcy filing. The intricate ownership arrangements of the property beneath the buildings, specifically the Riese fee parcel and the Walber fee parcel, were also a source of confusion and financial hardship, it was stated.
A judge determined that the Walber family’s $121 million sale to office landlord SL Green in August 2021 breached Argent’s ownership rights to the building. In May, Argent paid the same $121 million for the 11,000 square foot parcel that belonged to the Walber family.
The bankruptcy statement stated that the legal dispute with SL Green was “expensive, time consuming, and made it difficult, if not impossible, to reopen the hotel.”
On Wednesday, Argent purchased the last fee parcel beneath the hotel. When contacted for comment, Vornado—the property’s ultimate equity owner—did not respond right away.
The Association for Computing Machinery, American Management Association, and Open Jar Studios are a few of the office tenants at 1601 Broadway, with monthly rent coming to roughly $500,000. The monthly average for retail rents, including Krispy Kreme’s, is roughly $635,000.
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