Saudi prince close to deal on Plaza Hotel buyback

Real Estate Weekly, Oct 19, 2005 by Daniel Geiger

Saudi Prince Alwaleed bin Talal, who is said to have had his eye on buying back a stake in The Plaza Hotel since selling it just over a year ago, is close to entering into a partnership with Elad Properties to own portions of the landmark asset, a source familiar with the deal revealed.

In August of 2004 Talal, along with then partner, Millennium & Copthorne, sold the property to Elad for $675 million, a record-breaking price for a hotel at the time. Elad is currently in the process of converting the 800-room hotel, which had struggled in recent years due in part to its large size, into residential condos, hotel condos, and a much smaller 150-room hotel. The prince will only own a stake in the latter two portions. "Prince Alwaleed bin Talal never wanted to exit The Plaza, it was really Millennium & Copthorne," said the source, who has been involved in the deal to bring Talal back in. "The prince sold it with the thought that he would buy back in relatively quickly and that's basically what he did."

Although it was widely reported that Talal's investment in the property would be around $500 million--an amount perhaps reflective of the value of the hotel and hotel condos--that sum likely will be substantially less as Elad is only selling a partial interest in those sections.

"Elad bought the property for $675 million and is putting in $350 million to renovate it. To say that the prince is investing $500 million, nearly half of Elad's total investment, for what would be an ownership interest in less than half of the hotel is inaccurate," the source said. Talal's ownership stake in the property won't be his only avenue of profit however if Fairmont Hotels, a company in which he owns a significant stake and which managed The Plaza when Talal owned the property with Millennium & Copthorne, is again installed as the operator. Talal is said to be lobbying for Fairmont's reinstatement, but so far Elad has not come to a decision.

When Elad purchased the property it wasn't clear if The Plaza Hotel would remain a hotel at all. Early indications were that the Israeli firm would convert the building entirely into residential condominiums. Then the hotel's union seemed to step in and rescue a sizeable hotel portion, but the source downplayed the union's role in preserving the hotel portion, citing the importance of the hotel's presence in maintaining the building's mystique and providing condo residents with added amenities.

"Someone who comes in and buys a $12-$15 million apartment is going to want hotel services," the source said. "Elad recognized that and was planning to keep the hotel regardless of what the union was lobbying for."

The condo hotel portion, which expands the smallish 150-room hotel by up to 200 more rooms, will tap a portion of the residential market with tremendous depth and further diversify the type of buyer The Plaza's residential portions are likely to draw.

"Are there people who can afford $12-$15 million for a condo with park views? Yes. And are there people who can afford a $700 per night hotel room? Again yes. But there are also a lot of people who really wouldn't be in the market for either that would snap at the chance to own a piece of The Plaza in the form of a $3 million hotel condo and collect the income they get from lending the room to the hotel."

The Plaza's unparalleled views of the park are being reserved for only its condos, but that won't prevent the hotel from garnering the premium rates some of its competitors charge.

"The St. Regis doesn't have park views, neither does the Four Seasons," the source said.