Montgomery Street Partners is using a 99-year ground lease structure to acquire and facilitate the planned residential conversion of the Hudson Hotel in Columbus Circle, Manhattan
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 ground leases non-subordinated long term. The REIT announced that it had acquired and concurrently leased the Hudson Hotel under a 99-year ground lease to an undisclosed tenant.
The Hudson Hotel is a 90 year old property that was recently converted into a hotel by Ian Schrager. The undisclosed tenant originally entered into a contract to buy the property from Cain International for $207 million; he then assigned the contract to GLR, who completed the sale and simultaneously leased it to the undisclosed tenant, who 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 land lease.
“With vacant apartments in New York nearing zero and rents at unprecedented levels, the developer recognized that the highest and best use of the property was a residential rental product that would help resolve the imbalance between market supply and demand in the Columbus Circle submarket,” Max Nipon said. , SVP at MSP. “Our tenant partner has used our ground lease capital and combined it with lease financing to take control of the asset and reposition it. We are very pleased to partner with them as they have an exceptional balance sheet and have a top notch team to deliver the business plan.
Originally built in 1929, the 24-story building was an iconic Midtown Manhattan hotel. With construction due to begin soon, the property will be converted into a Class A rental building featuring a premier suite of amenities and 438 studio, one-, two- and three-bedroom units with high-end finishes and 8 high ceilings. 10 feet.
“Beyond all the nuances of the ground lease structure and associated tax issues, the deal also presented various legal complexities associated with converting the hotel into an apartment. Working closely with our client within a 60-day fast, we were able to meet these challenges and put each party at ease moving forward with the deal,” Ash said.
Nipon added, “Our ground lease combined with lease financing provides our tenant partners with compelling execution at a lower blended cost of capital.”
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