Andrew Farkas Bets on NYC Hospitality With $185M Buy of Lexington Hotel
The New York real estate tycoon’s global investment firm — in a joint venture with MCR and Three Wall Capital — bought the historic Lexington Hotel at 511 Lexington Avenue in Midtown East for $185 million earlier this month, or about $255,000 per key, a little over half the cost of what the seller, DiamondRock Hospitality Company, paid for it in 2011 — $333.7 million.
HPS Investment Partners supplied about $125 million in debt to help the joint venture buyers acquire the asset, mortgage records show.
All told, Island Capital and its partners were able to scoop up a well-known, Marriott International-branded hotel — a staple of a hospitality hotspot along Lexington Avenue — for 55 cents on the dollar in preparation for what they believe will be a robust comeback.
“We’ve seen a lot of stuff, but no one times anything perfectly,” Farkas told Commercial Observer. “No one hits the absolute top, and hopefully we won’t hit the absolute bottom. We were very well within the envelope of opportunistic investing with the price we paid, the time at which we paid it, [and] the position this asset enjoys in the market.”
DiamondRock, though, saw the disposition as a sound way to dial back its exposure to New York.
“We are pleased to announce the closing of this transaction, which right-sizes our portfolio’s exposure to New York City,” DiamondRock President and CEO Mark Brugger said in a statement earlier this month as part of its announcement of the sale.
After surveying a number of opportunities across the city, Island Capital identified the Lexington Hotel as the first investment that would come out of its new, $350 million fund targeting “COVID-19-generated, distressed opportunities” — a war chest that the company compiled in a short period of time during the pandemic to target a variety of high-profile assets in New York that have been negatively impacted by the pandemic, according to Farkas, who is the founder, chairman and CEO of Island Capital. About 90 percent of the capital raised for the fund has yet to be deployed.