Value-Added Hospitality Repositioning Opportunity, Midtown South, NYC

03-Mar-2020

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

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Projected Capital Structure: $39.8MM ($8MM Equity 95/5), ($24MM Pref. Equity), ($8MM Debt)

50,000gsf (115 keys)

This is a private equity commercial real estate investment opportunity to co-invest with a strong vertically integrated NYC real estate developer (the “Sponsor”) with a successful track record in ground up development as well as executing value-added conversions and repositioning strategies.  This is a unique investment opportunity to buy an existing 99-year leasehold interest of an existing hotel asset in the Midtown South neighborhood of Manhattan (11-story commercial zoned building – 50,000sf, with existing 115 keys) at a very attractive price and reposition and renovate the property.  

The Sponsor is in negotiations with a world class alternative hospitality operator who would net lease the entire building upon completion of the renovation program. The operator will handle all operating expenses and pay annual rent to the leaseholder.  The ground floor will be leased to a first-class food and beverage restaurant and bar operator which will provide an additional revenue to the leaseholder. 

The property is strategically located in a prime midtown south location within walking distance to multiple tourist hubs – MSG, Penn Station, Flatiron District, Madison Sq. Park, Union Square, Chelsea, Highline, Herald Square, and the Empire State building to name a few.  The property’s close proximity to multiple mass transit lines makes this the perfect property to cater to both tourists and business travelers. 

Midtown South has become a very desirable location for many downtown lifestyle tech firms.  Google and other tech firms are nearby and will require hotels or alternative short-term rentals to cater to tech savvy business travelers.  Property is also located near several universities.

This is a high quality off-market relationship-sourced deal that is available to Sponsor at a very attractive asymmetrical risk/reward profile.  The non-union renovation program is anticipated to take 12-14 months and upon completion the operator will begin its operations, which will also be non-union.

*** possibility to increase keys with purchase of additional air rights

Acquisition:  $24.5MM / $574sf  

Construction costs (hard/soft costs): $8.9MM / $208sf

Total All-in Cost is $932sf / $346,199 per key / 8.7% Yield To Cost

Levered IRR 15%+, 1.82x ERM, Net Rental Income $3.5M+ / annually

Preferred Equity 12% IRR, 1.66x ERM / JV Equity 23% IRR, 2.25x ERM

Exit Cap Rate 6%, $1,360psf Sale, $26MM Profit, Five Year investment period

Time line:  ASAP, ** Short time frame – construction can be completed in 12-14 months **

Renovating and upgrading existing rooms and lobby. Then lease to operator.  Cash flows in Year 2.  

        Existing Conditions                                     Proposed Conditions

Oxstones Real Estate, www.Oxstones.com  CRE@Oxstones.com

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