Winthrop Realty Trust is set to up its stake in the planned development of a new hotel at 701 Seventh Avenue to $120 million.
The company announced today (Tuesday) it would increase its financial commitment to the venture from the previously stated $68 million.
Winthrop is part of an investment group led by The Witkoff Group and New Valley, an investment unit of South Florida-based Vector Group LTD (VGR), together with Maefield Development and Infinity Urban Century that acquired the Times Square site on the northeast corner of Seventh Avenue for $430 million last October.
Dubbed the Times Square Gateway Center, the site could be the home of a 340,000 s/f, 36-story, multi-use development with retail space, a hotel tower, and the nation’s largest single LED screen.
The retail development, with its 24,000 s/f LED sign, is expected to be operational within two years. If the first four floors of the building can be rented at a rates slightly less than some recent high-profile Times Square deals, developer Steve Witkoff told REW that retail income alone will give the investors a 35 percent internal rate of return over three years — and that’s if retail rents in Times Square don’t continue to climb, which is not what Witkoff expects.
“I believe rental rates in Times Square are going to far outstrip Fifth Avenue,” he said in an interview following the purchase.
The venture has yet to announce a deal with a major brand to operate the hotel, a move which might facilitate construction financing.
But Winthrop said its increased commitment reflects its “election to participate in the ownership of the hotel to be developed at the property and an increase in its preferred equity ownership from 45.85% to 61.1%.”
Winthrop will contribute on July 23, 2013 an initial additional $4.9 million to the venture and has agreed to make a second payment of $4.7 million upon refinancing of the existing mortgage and mezzanine debt.
Inclusive of the initial additional payment, Winthrop will have contributed $35.6 million to the venture and is entitled to a 12% preferred return on its contributed capital of which 8% is paid currently, and 4% is accrued.
A 475-room hotel could be built at the site for about $500,000 per key, Witkoff estimated, adding that the success of the W Hotel next door suggests each of those rooms would be worth $1 million once they’re available to the teeming hoards of Times Square tourists.
Meanwhile, Winthrop also announced that it recently sold its Denton, Texas retail building for a gross sales price of $1.85 million ; and obtained a $5.1 million loan secured by its Churchill, Pennsylvania property.