Northwind Group founder Ran Eliasaf said his private credit firm is stepping in to fill a void from commercial banks as a lender in the redevelopment of the former Hudson Hotel on West 58th Street in New York City into apartments.
Northwind Group is providing $100 million in capital for the 24-story hotel, which closed in the wake of the COVID-19 pandemic after decades as a local destination designed by Ian Schrager, the firm announced Tuesday.
“The biggest need is in the senior debt,” Eliasaf said. “That piece would be typically provided by a commercial bank but most are on the sidelines.”
The financing comes about a year after CSC Coliving acquired the hotel from Eldridge Industries for $207 million.
Northwind Group, a $3 billion AUM real estate private equity firm that runs three private funds, announced Tuesday it provided the $100 million in the form of a senior A-Note, as part of a $207 million senior leasehold mortgage for the property.
The loan was secured by the Hudson Hotel, which formerly housed 878 rooms now being converted into 441 multifamily units and 51,474 square feet of retail space.
The property was capitalized by Montgomery Street Partners as the fee holder and Parkview Financial, which provided a leasehold mortgage in 2022.
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Northwind Group’s Eliasaf said the developers are mostly converting three hotel rooms into two-bedroom apartments, amid demand for residential space in the city even as office space sits empty.
“Everyone is back — the sidewalks are full,” he said. “There is too much office supply but the city’s population is growing again. New York will grow by 100,000 people in the next three or four years, but you’re only adding 6,000 to 10,000 apartments a year so the math doesn’t add up.”
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The collapse of Silicon Valley Bank and lower demand for some types of debt plus an increase in economic uncertainty have caused banks to be more reluctant to wade into fresh real estate deals.
The current situation amounts to a crisis for small banks, but credit and capital are much more available now than during the Global Financial Crisis of 2008-2009, he said.
“The biggest difference in 2008 and now is that now there’s still a lot of liquidity out there—we’re seeing it. It’s a crisis on the bank level and there’s uncertainty with other local banks that may be in a tough spot. It’s a crisis in book values and interest rates…and the market is stalling, but it’s not a liquidity crunch.”
Asked about one of the hottest financial topics of 2023—the impact of empty office space on the commercial real-estate market and on the U.S.’s financial system–Eliasaf said some lenders and property owners may be challenged.
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“We’re going to see improvement in occupancy and usage in office but with the time it’s going to take, some aren’t going to make it, especially those that are over leveraged,” he said.
Northwind Group recently debuted its A-Note financing product, which sits in the most senior tranche of the capital stack on real-estate transactions.
“This pool of capital can be provided as an A-Note or Loan-on-Loan and will be available for all major asset types across the country, with a major focus on residential transactions, with loan size of $50 million and above,” Northwind Group said.
Northwind Group has seen demand for its debt for developers who are finishing up their construction and need additional debt to give them more time to sell the units and pay back their lenders.
Along with Northwind Group, private equity firms as large as Blackstone Inc.
BX,
have been moving to address any capital needs in the market as many banks regroup.
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