Montgomery Street Partners (“MSP”), a diversified commercial real estate investment firm has formed The Ground Lease REIT (“GLR” or the “REIT”) a dedicated vehicle focused on the origination and acquisition of long-term, unsubordinated ground leases. The REIT announced that it has acquired and simultaneously leased the Hudson Hotel under a 99-year ground lease to an undisclosed ground tenant.
The Hudson Hotel is a 90-year-old property that most recently was converted into a hotel by Ian Schrager. The undisclosed tenant initially entered into contract to purchase the property from Cain International for $207 million; it then assigned the contract to GLR, which completed the sale and simultaneously leased it to the undisclosed tenant, which will redevelop the property into a luxury apartment building. Parkview Financial provided $207 million in the form of leasehold construction financing to facilitate the conversion.
The REIT was advised by Danielle Ash, Morgan Stevens and Jenna Imbrogno of Duval & Stachenfeld on the acquisition and ground lease.
“With apartment vacancies in New York near zero and rents at unprecedented levels, the developer recognized the highest and best use for the property was residential rental product that would help address the market’s supply-demand imbalance in the Columbus Circle submarket,” said Max Nipon, SVP at MSP. “Our tenant partner utilized our ground lease capital and paired it with leasehold financing to gain control of the asset and reposition it. We are very excited to partner with them as they have an exceptional track record and have engaged a best-in-class team to realize the business plan.”
Initially constructed in 1929, the 24-story building was an iconic hotel in Midtown Manhattan. With construction slated to begin soon, the property will be converted to a Class-A rental property featuring a best-in-class amenity package and 438 studio, one-, two- and three-bedroom units with high-end finishes and 8 to 10-foot ceilings.
“Beyond all the nuances of the ground lease structure and associated tax issues, the deal also had various legal complexities associated with the hotel-to-apartment conversion. Working closely with our client under a quick 60-day timeline, we were able to navigate these challenges and make each party comfortable with moving forward with the deal,” said Ash.
Nipon added: “Our ground lease paired with leasehold financing provides our tenant partners with a compelling execution at a lower blended cost of capital.”