Morgans Hotel Group Co. has sold two of its iconic hotels in New York, the Morgans and the Royalton, to FelCor Lodging Trust Inc. for $140 million. MHGC will continue to operate the hotels under a 15-year management agreement, with one 10-year extension option. The transaction is expected to close in the second quarter, and is subject to customary closing conditions.
The sale price for the two hotels represents a value of approximately $500,000 per room. “This is a terrific outcome and an important continuation in our shift toward an ‘asset light’ business model, allowing us to focus on higher margin management and branding opportunities,” said Michael Gross, who became Morgans’ ceo last month. “This transaction highlights the unique locations and appeal of our brands and the value of our real estate assets. With a stronger balance sheet and a talented new management team, we are excited about the prospects to grow the company and increase shareholder value.”
The hotels are the first properties in New York for Felcor, whose portfolio consists of 80-plus hotels and resorts in the U.S. and Canada. Felcor says its plans for the Morgans include adding guest rooms, upgrading its fitness center and guest lounge and adding to its food-and-beverage offerings.
“We are very excited about this opportunity to gain entry in superb locations in Manhattan at a very favorable price per key and substantial discount to replacement cost,” said Richard Smith, FelCor’s president and ceo. “These two high-quality properties are in terrific condition and will require limited capital in the near-term. This submarket within Manhattan consistently performs at a high level compared to the industry and is expected to experience above-average RevPAR and EBITDA growth over the next few years and beyond. We feel confident in the abilities and vision of the new management team at Morgans and look forward to a rewarding long-term relationship.”
Morgans, generally considered the original boutique hotel, is on Madison Avenue, between 37th and 38th Streets. The 19-story hotel has 114 guest rooms and 1,500 square feet of meeting space, as well as a “living room” and fitness center on the first guestroom level and a full-service restaurant, Asia de Cuba. The hotel underwent a renovation in 2008, for $10.3 million (approximately $90,000 per key).
The Royalton is located on West 44th Street, between Fifth and Sixth Avenues. In addition to featuring a Philippe Starck design in its 168 guest rooms, the hotel is also home to the Brasserie 44 restaurant and adjacent Bar 44, as well as fitness and business centers. The hotel underwent a $20.2 million renovation in 2007 (approximately $120,000 per key), including a makeover of its lobby. In 2010, an additional lobby bar was added for $1.5 million.
In recent decades, the property has been operated as an office building. FelCor’s partner in the deal is an affiliate of Highgate Holdings LLC, which will manage the hotel when it opens. FelCor said it intends to operate the locale as an independent hotel under the Knickerbocker name.