NEW YORK, Jan 21 (Reuters) - The W New York Union Square hotel could change hands again, just months after a foreclosure auction gave a junior lender control of the property.
DekaBank Deutsche Girozentrale [DSUGUD.UL], the holder of mezzanine A debt of the hotel, is seeking to foreclose on its debt under the uniform commercial code. The action is an effort by the German bank to force the hotel's new owners to pay months of interest payments, late fees and other charges owed to the bank. DekaBank lent the hotel $60 million in 2006.
LEM Mezzanine, the most junior of the hotel's creditors, took control of the hotel from Istithmar, a unit of Dubai World [DBWLD.UL] in December for $2 million in a New York foreclosure sale.
But DekaBank, which is the hotel's most senior lender, can force LEM to pay months of unpaid interest payments and other fees owed to them by foreclosing on its loan.
This strategy could mean the bank winds up with the property, the bank's adviser said.
"Their goal is to get paid off," said David Gutstadt, senior vice president at Savills, DekaBank's adviser. "If the path to recapturing all of their dollars is having to take ownership (of the hotel) for a period of time, they'll do it."
DekaBank is holding a foreclosure auction on March 24 in New York to sell its mezzanine debt, according to a public notice in major newspapers, including The Wall Street Journal, on Wednesday.
Gutstadt said DekaBank has not been paid interest payments and other fees owed to them on its more senior loan for months.
LEM declined to comment through a spokesman.
INFIGHTING AMONG HOTEL LENDERS
The 270-room W hotel in Union Square was bought for $285 million by Istithmar in 2006, according to Real Capital Analytics. Since then the worth of the property has fallen as the hotel industry battles with a severe downturn.
The popular luxury hotel is operated by Starwood Hotels & Resorts (HOT.N).
Hotel industry experts say infighting among lenders for control over these hotels will become more common as more and more properties are expected to buckle under the weight of their debt. Complicating matters is that there are few examples of how to handle hotels financed by commercial mortgage-backed securities that fall behind on their payments.
"Typically, the loan was held by one bank," said Alan Reay, president of Atlas Hospitality Group, a hotel consulting firm and brokerage in California. "Now there could be 30 different investors on that loan.
"A lot of people are learning this as they go," he said, a sentiment echoed by Gutstadt.
"Everything that has happened so far has been surprising to us," Gutstadt said.
DekaBank can wrest control of the property if it is not paid by LEM, a Philadelphia-based private equity fund, and hedge fund Sandelman Partners, which owns the B-piece of the mezzanine loan.
Gutstadt added that other lenders, private equity fund LEM Mezzanine and hedge fund Sandelman Partners, had until the foreclosure auction to come up with a solution.
The auction "is a mechanism to really force the owner to put forth an adequate restructuring plan," Gutstadt said, adding that DekaBank believes its stake is worth what it paid.
He declined to comment on whether LEM or DekaBank are negotiating. He also declined to describe DekaBank's strategy for running the hotel should they wind up the owners.
