Hotel Chelsea’s New Proprietor
The Wall Street Journal 5/16/2011
By CRAIG KARMIN
The buyer of the legendary Hotel Chelsea—a subject of rampant speculation in real-estate circles in recent weeks—turns out to be New York real-estate investor Joseph Chetrit, who previously upgraded the Empire Hotel, another property with a storied pedigree.
Mr. Chetrit, an active property investor who shuns publicity, has signed a contract to purchase the hotel for more than $80 million, according to people familiar with the matter. The Wall Street Journal reported last month that the famous lodging for the artistic and bohemian had been sold, but the buyer’s identity has been a closely guarded secret.
Mr. Chetrit, whose properties include a stake in the country’s tallest building, the Willis Tower in Chicago, didn’t respond to requests for comment.
But the outlines of his plans for the 12-floor building on West 23rd Street are beginning to emerge. Mr. Chetrit intends to keep it as a hotel, upgrading and modernizing it, according to people familiar with the matter. That will likely come as some relief to the hotel’s regular tenants and other fans of the 127-year-old property who had been worried a new owner might convert it into condominiums.
If the sale to Mr. Chetrit closes, it will mark the end of control by an ownership group led by three Hungarian families who bought the red-brick building in 1946. In recent years, disagreements grew among the owners about such things as rent-collection policies and investing in the property, which is showing its age. They put it up for sale last fall after concluding a renovation would be too difficult and costly.
It’s unclear whether Mr. Chetrit will continue the hotel’s tradition of liberal rent-collection policies toward some struggling artists, though many in the hotel industry have expressed doubt that any new owner would continue such a policy.
Originally opened as one of the city’s first cooperatives, then converted into a hotel in 1905, Hotel Chelsea has been home to a creative class, from Dylan Thomas to Thomas Wolfe. Arthur C. Clarke wrote “2001: A Space Odyssey” there, and Leonard Cohen wrote the song “Chelsea Hotel No. 2” in its honor. It also was the setting for Andy Warhol’s 1966 film “Chelsea Girls,” and the site where Nancy Spungen, the girlfriend of punk-rocker Sid Vicious, was stabbed to death.
The opportunity to own the landmark property drew interest from many of the city’s heaviest hitters, including Aby Rosen, Ian Schrager and Andre Balazs. Lately a guessing game has spread in real-estate circles as to the identity of the mystery buyer, though Mr. Chetrit’s name rarely surfaced.
The sale to Mr. Chetrit caps a flurry of deal-making in the Chelsea area during the past few months that saw more than six million square feet of property change hands.
In April, RXR Realty agreed to purchase the Starrett-Lehigh building for more than $900 million, and earlier this year Jamestown Properties agreed to buy out its partners in Chelsea Market in a deal valued around $800 million. In December, Jamestown sold search-engine giant Google an office building on Eighth Avenue for $1.9 billion. Eastdil Secured senior managing director Douglas Harmon brokered those deals, as well as the one for the Chelsea Hotel.
The Hotel Chelsea deal also comes as the Manhattan hotel market, battered by a recession that damped business travel and tourism, has been perking up. Occupancy and room rates are gradually rising.
But Mr. Chetrit will face stiff competition. While the Hotel Chelsea has global appeal and retains a counterculture cachet, a number of new hotels—from Harlem to the High Line—have opened recently or are slated to open this year.
Even fashion designer Tommy Hilfiger and a partner are getting in the game, agreeing to buy the Clock Tower office building at Madison Square Park for $170 million, with plans to convert it into a luxury hotel.
The hotel’s new owner also will face hurdles in his plan to upgrade the property to attract more affluent travelers. The Hotel Chelsea has 125 guest rooms and about 100 rental apartments, some of which are under rent regulations. Many of those renters have been vocal about wanting to stay, and removing them could become expensive or be challenged in court.
Hotel experts also say the property’s aging lobby, retail space and corridors need considerable investment.
“Many rooms also need top to bottom work,” said John Fox, a hotel analyst with Colliers PKF Consulting.
Mr. Chetrit has experience in dealing with concerns of tenants in buildings he’s acquired and upgraded. In a similar deal, his Chetrit Group in 2004 acquired the Empire Hotel, next to Lincoln Center, which housed a number of long-term residents.
Despite media reports that he planned to convert the building into condos—a popular trend at the time—he renovated the property and has maintained it as a hotel. He also moved a small number of existing tenants into renovated rooms at the Empire where they could live rent-free.
Mr. Chetrit, a Moroccan-born immigrant, owns directly or through partnerships dozens of buildings in New York and a handful of other states.
Unlike some developers who have remained on the sidelines since the recession, he has been active lately.
For example, Mr. Chetrit recently began interior demolition on the former Caledonian Hospital complex overlooking Propsect Park in Brooklyn, which he is planning to convert into a 270-unit condominium.