(Bloomberg)—A Times Square hotel and retail property once valued at more than $2 billion is a step closer to foreclosure after a court victory for a group of lenders led by Natixis SA.
The court granted the lenders the right to foreclose on the property, which features the 42-story Times Square Edition hotel designed by Marriott International Inc. and hospitality legend Ian Schrager. The judge also scheduled a hearing to decide how to proceed with a sale.
It’s the latest setback for owner Maefield Development, which has been facing foreclosure since 2019, after construction delays and trouble filling the project’s retail space led the lenders behind a $650 million loan to file suit.
A foreclosure ruling typically allows a lender to immediately proceed with the sale of a property in order to recoup their investment. New York State Supreme Court Justice Joel M. Cohen scheduled a status conference between the parties for March 23 to decide to how to proceed, according to court documents.
Representatives for Natixis and Marriott declined to comment. Maefield didn’t immediately respond to request for comment.
A foreclosure sale would complete a startling reversal for a property viewed as a marquee development in Times Square. A 2018 appraisal valued the property at $2.4 billion, and a 2019 party to celebrate the rare opening of a luxury hotel in the neighborhood attracted a generation-spanning list of celebrities, from Kendall Jenner to Diana Ross.
But Maefield struggled to fill the retail space, and the hotel failed to generate positive cash flow, according to the court ruling, leading lenders to file for foreclosure in December 2019. In the months that followed, the Covid-19 pandemic laid waste to the global hospitality industry, grounding travelers and shuttering hotels.
In May, Marriott threatened to strip the Edition brand from the hotel because of cash flow shortfalls, issuing a warning to employees and union officials that the hotel could permanently close in the months to come. Marriott eventually ironed out an agreement with Maefield’s lenders, though the property remains shuttered.
The property is hardly alone in its struggles. New York City hotels recorded occupancy rates of 38% in January, down from 72% in 2020, according to lodging data provider STR. Nearly 27% of hotels in the New York metropolitan area financed with commercial mortgage-backed securities are at least 90 days delinquent, according to data compiled by Bloomberg.
Still, many lenders have been reluctant to take possession of money-losing hotels, preferring instead to extend loans and hope that borrowers will make good on missed payments in an eventual travel rebound.
Hotel owners in the U.S. have been pushed into bankruptcy in recent months amid ongoing disputes and foreclosure attempts by lenders. The owner of the Williamsburg Hotel in Brooklyn sought Chapter 11 last month and has faced foreclosure by its lender since June 2019. A hotel development in Coachella, California, recently sought bankruptcy after its lenders attempted to foreclose, amid allegations of fraud and mismanagement.
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