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Palace is sold, Millenium next.

After two years of court ordered receivership, the New York Palace has been contracted for sale to a group of Singapore investors for $202 million. Meanwhile, Peter Kalikow's Hotel Millenium is about to change hands for a price closer to $140,000 a room, equalling $75 million for the smaller 561-room businessman's retreat in the Financial District.

Experts declared the Palace price - working out to $209,761 for each of the hotel's 963 rooms - to be reasonable in the current marketplace, but certainly lower than the amounts garnered in the heady days of late 80's sales.

The Palace price also reflects the hotel's position as a long term lessee of land owned by the Catholic Church and an adjustment to market rent in 1999.

Michael Cahill, MAI CHA, senior vice president with Hospitality Valuation Services of Mineola, said while the Palace price is decent, the bigger questions involve who is providing the financing and how the deal is being put together.

Sources say the deal will be all cash. While the Helmsley's, represented by Adam B. Gilbert of Shea & Gould, have protested the sale on the basis of a depressed market and low price, even he admitted that without knowing the buyers they would be qualified in the courts eyes if they showed up at closing with the money. Interstate Hotels has been acting as receiver for the Palace and presented the deal to an arbitration panel last week.

Right now, only a letter has been presented from an offshore bank, attesting to the investors having sufficient funds to close the transaction.

The investors, a limited partnership called Amedeo Hotels, is represented by John T. Rieger of Northport, who formerly had offices in the World Trade Center. He declined to comment due to confidentiality agreements.

Others say the investors are already involved with some hotels, other real estate and a variety of businesses.

Paul Stern of Sonnenblick-Goldman who handled the sale on an exclusive basis together with Eastdil Realty Inc., declined to comment on the identity of the purchasers, other than to say they were "investors." He added the first and second mortgage totalled less than $50 million, with other sources saying that is made up of a first mortgage of $40 million and a trustee letter for $10 million.

"The mortgage is getting paid off and the partners are making a profit," said Stern. "It's not the trophy numbers we were seeing for '88, but the $202 million number is not a distressed price. It's not this 'pennies on a dollar' we're seeing right now."

Stephen W. Brener, CCIM, CRE, CHA, president of Brener Associates, Inc, a subsidiary of InterBank/Brener Hospitality Consultants agreed "It's today's market. Not the numbers we were seeing four years ago."

Arthur Adler, a partner in the Hospitality Industry Consulting group of Coopers & Lybrand's New York office, remarked that most recent city hotel purchases have some connection to a hotel parent company. "For an investment company, it would cost more to build the Palace than to buy it. In addition you are getting a piece of improvement for a reasonable cost of admission."

The price is, in fact, above what a source said was the appraised value of $200 million and well above New York City's valuation of about $113 million. It is also in line with other sales that took place last year, including the Omni-Berkshire Place to Wharf Holdings, which completed its previous partial investment with $85 million or $198,000 for each of the 420 rooms. The Parc Fifty One, now the Michaelangelo, was purchased by StarHotels of Italy for $38.9 million or $218,539 for each of the 178 rooms, a "user" price, said analysts.

Prices have also been depressed because of the 19.25 percent tax on hotel rooms costing over $100 per night, which covers most of the city's luxury hotels.

John A. Fox, principal of Pannel Kerr Foster CPAs and hotel consultants, said the price for the Millenium was reasonable as well. "In some respects it's troubling that we had this cluster at 200,000 [per room] but in other respects it's a price that makes sense from an economic standpoint on a current basis," he said. The banking consortium pushing for its sale had been asking $125 million based on construction costs. The city values the hotel at about $65 million.

Clarifying the lenders' position, Kathleen Duffy, a spokesperson for the Millennium, explained earlier this year that the bankers were seeking investors and not an outright sale of the hotel. "The banks don't want to own the hotel and Kalikow can't service the debt," she noted. "In reality, he's restructuring the debt on the hotel." It is still unclear if the Millennium "sale" is truly a sale.

Hotel consultants believed at first the Palace investors were part of New World, an Asian group controlled by the Chang family of Hong Kong that currently owns and operates the Renaissance chain.

They had purchased Stouffer Hotels in May of this year under a private agreement with Nestle's. Its president was in Hong Kong and unavailable for comment, but the communications director and others close to the transaction confirmed New World was not involved with the Palace and was busy integrating the properties it just took over.

Other sources, however, confirmed that New World will become the management team for the Hotel Millenium. The sale should be completed shortly to another Hong Kone buyer.

Peter Krause, principal of the Morgan Stanley hospitality group who was hired to shop the hotel, did not return calls for comment.

Ronald B. Bruder, the president of Brookhill Group, who is an investment consultant representing Hong Kong purchasers, said there were easily 30 to 40 groups that could make a deal for the Palace and Stern confirmed they had shopped the hotel to that many potential buyers around the world. Even George Soros' Quantum Group had passed on the elegant Palace earlier this year, but is still looking for other hotels and commercial properties.

Clearly, the New York Palace, once the pride of the Helmsleys, could become a flagship hotel for any chain, as could the Millennium, although a Rennaissance already operates in Times Square. Sources say the Renaissance name will be attached to the Millenium, since Nestle's sales agreement with New World calls for the phasing out of the Stouffer tag from the 40 properties currently owned, leased or managed under that moniker.

Analysts noted a chain affiliation can account for 25 percent of a hotel's business, but Cahill questioned how much such an affiliation would actually add to the Palace bottom line, since that number varies from market to market. The Palace, with a lower than average number of rooms being rented, hovering in the 40 percent to 60 percent range, has more upside, said Fox, than does the Millenium, which is closer to 70 percent filled. Although the Renaissance name is not well known in this country, it still carries the first class affiliation. One issue that presents a problem, he noted, is the small amount of meeting space in both hotels.

Fox said the Palace is a on a prime piece of New York City real estate. "It's one of the best locations in New York City and has underperformed where it,should have been."

The New York Palace was originally a residential apartment complex called Villard Houses and later it became the headquarters of the Archdiocese of New York. The land is owned by the Catholic Church. Helmsleys entered into the leasehold in 1978 and the Helmsleys Palace opened with, great fanfare in 1981. It remains a gilded, fancy hostelers away from home for tourists and business people from around the world. Real estate executives said the lease also contains an escalation clause that would bring the lease payment to whatever a market rent would be in 1999, another factor depressing the purchase price.

The Helmsleys currently own the Helmsley Middletowne Hotel, the Helmsley Windsor Hotel, the New York Helmsley and the Helmsley Park Lane, as well as the Harley chain, primarily found in other parts of the U.S.
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Title Annotation:New York Palace, Hotel Millenium, New York, New York
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Nov 3, 1993
Words:1352
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