As we all saw Dubai World, the main investment arm in the Gulf region city-state, ask lenders for a six-month suspension of nearly $60 billion in debt payments, we wondered how the financial giant’s actions are going to affect some of our own cities most prized buildings.
Real estate experts indicate that any direct impact on New York would be limited after Dubai’s recent debt announcement, however, there’s no denying the situation may signal “the inability of sovereign wealth funds to bail out distressed assets” in the U.S.
The suspension requested by Dubai World may force many of Dubai’s trophy assets around the world to be sold, including some very high-profile buildings located in New York City, such as the Jumeriah Essex House, the former Knickerbocker Hotel, and the W New York-Union Square hotel.
One analyst notes that what is happening is Dubai is not far from what happened in New York over the past year saying, “Dubai got drunk with debt just like we did here in New York. A lot of people think Dubai was financing its deals with oil. In actuality, it was very much of a debt-fueled building boom.”
Chief executive of a Manhattan-based appraisal firm, Ray Cirz, notes that average hotel rates in the city are down 25 percent from last year, priced around $300 a night—a level which has not been seen since 2004. Adding insult to injury, the reported occupancy rate of hotels is down to about 75 percent, also the lowest amount since 2004.
So just how much trouble are these New York-based Dubai assets in? While Starwood, parent company of W Hotels, has not formally commented on the situation, the W New York Union Square’s debt reportedly includes a $115 million mortgage loan, $60 million A note, $36 million B note, and a $20 million C note.
Part of the problem, although not nearly all of it, seems to be rooted in the fact that the predicted values of the hotels purchased by Dubai-based firms were simply unsustainable. It’s assumed that if the New York assets do go up for sale, they won’t come close to the previous buying prices.