Hotel Foreclosure Nixed as Owner Files Ch. 11

NEW YORK CITY-A foreclosure auction for the W New York-Union Square scheduled for Wednesday was canceled following a Chapter 11 filing by the entity owning the hotel property. A spokesman for Savills LLC, which is advising senior lender DekaBank Deutsche Girozentrale, confirms published reports that the auction scheduled to take place at law firm Sonnenschein Nath & Rosenthal LLP is off. DekaBank is listed in bankruptcy court documents as the entity’s largest unsecured creditor with a loan of $60 million.

Hotels Union Square Mezz 1 LLC’s Tuesday filing in US Bankruptcy Court in Delaware was intended to provide additional time to restructure the remaining mezzanine-level debt on the 285-key hotel, a spokesman for the mezzanine entity tells GlobeSt.com. He says the mezz-level entity, which was created by LEM Mezzanine, a junior lender on the hotel, “remains highly leveraged” following the previous foreclosure.

In that December 2009 foreclosure sale, Dubai World arm Istithmar World Capital lost control of the property. An affiliate of LEM successfully bid $2 million for the W and assumed $212 million of debt. Istithmar had purchased the 20-story property in 2006 for $285 million.

More recently, Istithmar has been struggling with a $26-billion debt load in general and declining room rates on the W in particular, and defaulted on the property this past fall. In early March, the former Knickerbocker Hotel, now known as 1466 Broadway, went on the block after Istithmar defaulted on a $300-million mortgage.