Deal review: at Essex House NYC, Marriott pays, while owners clip their guarantee

Strategic Hotels and Resorts in partnership with KSL Capital Partners acquired the Essex House towards the end of 2012. The hotel was reflagged to JW Marriott brand after Marriott International signed a 50-year management deal, in which it provided NOI guarantee to the new owners. Year 2013 is the first full year following the closing of the transaction and, here at OpenComps, we were curious to uncover how the owners and manager fared a year later.

Gross revenue at the hotel was close to $100 million, but only 15% flowed down to EBITDA. This performance was $10m better than the prior year when EBITDA was only $5 million, with NOI close to zero. Yes, zilch, for a hotel located in NYC overlooking Central Park! Despite the improvement in performance, Marriott paid $12.8 million to prop up the owners’ return based on the agreed upon NOI guarantee. This is no small change, considering that Marriott is expected to shell out another $4 million of income support this year provided the hotel hits its budget and the economy stays its course. Needless to say, hitting a soft patch is likely to strain the economics of this deal but, until then, the owners are happy to clip their guarantee and Marriott to oblige.

For more details refer to the management with guarantee model provided in the Tools section.