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Host Hotels & Resorts Puts W New York Under Contract for $190M

Opportunistic Sale Expected to Close in Q2 2018
April 4, 2018
Host Hotels & Resorts is under contract to sell the W New York Hotel at 539-541 Lexington Ave. for $190 million, according to company documents, with the transaction expected to close in the second quarter of 2018. The un-named buyer has already placed a $13 million deposit toward the transaction.

Host Hotels is the largest lodging REIT in the U.S., garnering 2017 revenue in excess of $1.3 billion. The company called the pending sale of its W Hotel an example of "executing on a strategic initiative" to reduce its New York exposure.

The company noted that the hotel has been a particularly poor performer and required substantial CapEX, adding that its ability to acquire the right to terminate the management agreement at this property was paramount to completing the sale.

Starwood Capital acquired the 693-key former Plaza District hotel for $40.65 million in 2004 from SBK Delaware Holdings. This previous transaction price amounted to roughly $59,000 per room, according to CoStar data.
See CoStar COMPS #1039462.

Weak international demand and new supply in the Times Square submarket has impacted its New York holdings, contributing to underperformance of the Host’s overall portfolio, said CFO Michael D. Bluhm. Besides New York, other cities which Bluhm says are expected to drag on its portfolio are Atlanta, Houston, Seattle and Washington, D.C.

Meanwhile, the company reportedly expects its properties in Los Angeles, Maui, Phoenix, San Diego and San Francisco will outperform its overall portfolio in 2018.

As of December 31, 2017, Host’s six New York properties comprised 6,000 rooms and earned $258.67 in RevPAR, marking a 1.4% RevPAR drop year-over-year. Miami and New Orleans properties were most afflicted, with RevPAR declining 11.1% and 1.7% year-over-year, respectively.

The REIT recently closed on its sale of Key Bridge Marriott in 2017, also for $190 million. It is also under contract for a $1 billion portfolio acquisition comprising three properties: the 301-key Andaz Maui in Hawaii, the 454-key Hyatt Regency Coconut Point in Bonita Springs, FL; and the 668-key Grand Hyatt San Francisco.

Tabulating what amounts to a 5% cap rate on its $900 million in activity for 2017 (including the W New York sale), Host Hotel says it remains "cautiously optimistic" about 2018 and expects the year's second half to be stronger than the first, with comparable RevPAR growth guidance at a range of 1.5%-2.5% above last year.

Host cited larger corporate profits, low unemployment and a strong global economy as reasons for optimism. It forecast further portfolio strength in 2019, anticipating moderation in national hotel supply.

As of December 31, 2017, Host Hotels operated 87 hotels around the U.S. totaling 48,357 rooms at the end of 2017. It made $98 million in income, compared to $128 million in 2016.

Diana Bell, New York City Market Reporter  CoStar Group   
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