Proposed UN Plaza sale: is now the right time?

Real Estate Weekly, May 18, 1994 by Lois Weiss

As part of a package of privatization efforts, Mayor Rudolf Giuliani is proposing to sell the city-owned United Nations Plaza Hotel and is already counting the expected $70 million in proceeds in the coming fiscal year's preliminary budget.

But the announcement last week has some real estate observers wondering out loud if now is the time to sell the property, being as sale prices for hotels are just now showing an increase in value after several years of decline.

Francis J. Nardozza, a partner with KPMG Peat Marwick in Miami and National Hospitality Industry Director, said "The luxury hotels in New York City have been trading anywhere from $150,000 a room to $400,000 a room. The Palace Hotel more recently traded at 202,000 a room and is a fair indication of price that the city might be targeting for that hotel." But he noted, the deal is so complex, $50 million might be a more realistic target.

The hotel, which is operated under the upscale Park Hyatt flag, netted the city $2.715 million in 1993 and the scheme would involve carving a hotel condominium out of two separate buildings, one of which sits on leased land. The sale would also have to go through a minimum six-month Uniform Land Use Review Process and be approved by community groups, the borough president and possibly the City Council.

The elegant green-glass curtain walled retreat is part of the Hyatt reservation network and is a destination for international travelers and business executives. Foreign dignitaries are particularly attracted by its location on First Avenue and 46th Street, across the street from the United Nations while executives appreciate the short commute on the FDR to downtown offices and the city's airports - also on the sales block.

"It's an asset in the mayor's budget," explained Forrest R. Taylor, a mayoral spokesperson on the reason for the desired sale. "The hotel is a piece of property."

Taylor believes the projected sales price would be in the range of $45 million to $70 million. It is counted as a $70 million line item in the budget, but consultants are varied with some thinking it could garner a higher number, as much as $85.5 million, if the right purchaser comes along and others believing the complexities of the deal could scare potential purchasers into a number closer to $50 million.

The $85.5 million comes out to about $200,000 a room, which is the current benchmark for city hotel sales, a long way from the late 80s heydays when properties like the Plaza and Stanhope turned over for $500,000 and $585,000 a room respectively. Some critics question such a sale of the city's property at a time the real estate and hotel markets appear to be on a rebound.

Nevertheless, Taylor projects the hotel would be sold during the fiscal year that begins on July 1. Taylor was unaware the hotel actually consists of portions of two separate towers and would be sold in the form of a condominium interest.

While it owns the land under One UN Plaza, the city leases the land under the second tower from the Bishop family, albeit at a favorable $250,000 a year with an escalation clause beginning in 2020 based on a price index from 2010. The 99-year lease terminates in 2079.

"It's a very favorable lease for the corporation," said Thomas Appleby, the president and CEO of the United Nations Development Corp. (UNDC).

The hotel rooms and suites themselves are perched on the top twelve floors of the two multi-use towers that are reached through a central lobby. The lower floors of each building house offices of foreign governments and missions.

The eastern-most building was opened in 1976 and has a majority of the guest rooms and meeting rooms while the Western phase opened in 1983, with about 157 rooms, starts on the 29th floor and has two banquet rooms. There are a total of 428 guest rooms.

According to Appleby, the average daily room rate for the year to date is $185 dollars and the occupancy is 70 percent with at least 20 percent attributable to U.N. business when the general assembly is not in session.

"We're in the luxury hotel class and looking at the industry statistics, it puts us comfortably above the competition," he said. "In terms of overall clientele, it's not a convention hotel, it's not a sightseer's hotel, it's a business hotel."

Hotels are typically priced on a per room basis, and revenue is figured on a rev par, or revenue per available room per day analysis. Based on the hotel's 70 percent occupancy and $185 average rate, that would come to $129.50.

John A. Fox, a principal in Pannel Kerr Foster, an accounting firm that provides hotel consulting, explained, "Rev par is an industry shorthand and levels the playing field."

He noted the average New York City hotel had a rev par of $97 last year, while hotels obtaining $150 to $200 per night per room had an average rev par of $113.

Last year, the UN Plaza accounted for $27 million in revenue to the UNDC. They paid $2.2 million to the city as payments in lieu of real estate taxes, that "can always get reassessed," and a fee to Hyatt for a management assistance contract that Appleby declined to disclose since he is about to negotiate a new agreement.