Schrager Passes on Buying Manhattan's Hotel Chelsea After Considering Bid
Ian Schrager, the developer credited with inventing the boutique-hotel concept, considered buying Manhattan’s landmark Hotel Chelsea and decided against an offer after viewing the 127-year-old property last month.
“It’s a sexy asset with an incredibly sexy history and we felt obliged to take a look at it,” Schrager, the chairman and chief executive officer of Ian Schrager Co., said in a telephone interview yesterday. “We took a pass.”
The owners of the Hotel Chelsea, a rock and roll and literary landmark whose denizens included singer Patti Smith and playwright Arthur Miller, put the property up for sale in October for the first time in more than 65 years. They are asking about $90 million for the 12-story building, according to a person with knowledge of the marketing. The person asked not to be named because the proposed terms are private.
Doug Harmon, senior managing director of Eastdil Secured LLC, the firm marketing the Chelsea to buyers, declined in an e- mail to comment on the price.
Schrager, 64, said he got “half a dozen” phone calls from investors seeking to partner with him to acquire the property, which includes 125 hotel rooms and 101 apartments with long-term tenants. The hotel carries almost no debt.
“We were a motivated buyer and we would have loved to have gotten it,” Schrager said. “Maybe there are others who are seeing things we didn’t see.”
$600 a Night
He estimated that the hotel could command rates of as much as $600 a night. The average rate for a junior suite on Dec. 10 is $349, according to bookings website Hotels.com.
Schrager and his business partner, the late Steve Rubell, started the boutique hotel trend in 1984 with the opening of the Morgans Hotel in New York. Schrager also opened the Delano Hotel in Miami; the Mondrian Hotel in West Hollywood, California; and the Hudson Hotel in New York, all currently operated by New York-based Morgans Hotel Group Co. Schrager left Morgans Hotel Group in 2005 to start Ian Schrager Co.
“If Ian Schrager got it, it would be a home run,” Faith Hope Consolo, chairman of retail leasing, marketing and sales for Prudential Douglas Elliman Real Estate, said of the Chelsea a week after the property was put up for sale. “He knows how to do these types of projects. He’ll put on that Midas touch.”
The hotel includes 17,000 square feet (1,600 square meters) of retail space located along 23rd Street and a brick rooftop terrace, according to marketing documents. Consolo said a new owner could find opportunity in the retail space alone, leasing it to a signature restaurant, or a niche gift or crafts store.
“This location could be a magnet for tourists,” she said in an interview. “It’s at the apex of everything going on east and west. It’s a very well-trafficked corridor and it’s the path to other neighborhoods.”
Hotel room rates in New York City climbed 6.9 percent in October from a year earlier to an average $273 a night, according to Smith Travel Research Inc. of Hendersonville, Tennessee. Revenue per room rose 6.9 percent to $231, even as occupancy remained unchanged at 85 percent.
In Manhattan, 15 hotels have been sold since the beginning of the year, according to Real Capital Analytics Inc., a real estate research firm in New York. The Milford Plaza on Eighth Avenue, with 1,300 hotel rooms, was the largest deal in dollar terms, selling last month for $230 million, or $176,923 a unit.
A sale of the Hotel Chelsea for the asking price of $90 million would be Manhattan’s sixth-largest hotel transaction of the year, tied with the Hotel Roger Williams, a 193-room property in Murray Hill that sold for that price in September.
“I’m not surprised that they’re asking this much, but I’d be surprised if they sold for that much,” said Ben Thypin, an analyst at Real Capital. “They’re comfortable asking for this much because it’s a famous property.”
The Hotel Chelsea, where Marilyn Monroe and Arthur Miller lived as a married couple and Patti Smith and Robert Mapplethorpe also shared a room, is being marketed not just for its history but also for its yield-generating promise.
“Fully unencumbered hotel with powerful branding and management potential,” reads Eastdil’s summary listing, which touts the building’s “iconic status,” and 800-square-foot rooms that a new owner could subdivide to increase the number of income-generating units.
The Chelsea “has never implemented or utilized an effective sales and marketing campaign or central reservations system,” the listing reads. “Considerable margin improvement and revenue maximization opportunities exist.”
Paying With Paintings
In the residential units, property income is derived from rents set decades ago, and an occasional oil painting is offered when the lease comes due.
“Just a few months ago we had a young lady who biked from Canada -- literally on a bicycle -- and showed up in the lobby, stayed there for a couple for days and kept insisting I give her a room,” Arnold Tamasar, the property’s general manager, said in an October interview. “I negotiated with her and we did a barter. She gave us a beautiful painting and she stayed for about a month.”
Schrager said he would have kept the hotel “basically the same” had he acquired it.
“It would still feel very Bohemian,” he said. “If you put a shine on it, you would have ruined it.”
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