A joint venture has finalized the purchase of the historic Westin Book Cadillac hotel in the downtown area after a lender threatened the previous owner with foreclosure.
The joint venture between Chicago-based hotel developer Oxford Capital Group LLC and New York-based hedge fund Taconic Capital Advisors LP has assumed $ 77 million in commercial mortgage-backed securities owed by the Ferchill Group based in Cleveland and plans to spend the next two years and $ 16.5 million for the tower renovation at 1114 Washington Blvd. and Michigan Avenue.
The deal was first revealed in late September when Oxford asked the city for a 12-year property tax exemption of $ 10 million and a total of $ 26.5 million from all tax entities for the project, which involves exterior and interior improvements such as improvements to showers, counters, paint, plumbing, HVAC system, elevators, public spaces, meeting rooms and ballrooms. The property is expected to remain open throughout the renovation, according to a press release.
According to a municipal document, the property taxes currently stand at $ 733,829 and during the incentive they would increase slightly to $ 839,101 based on the land appraisal increase alone, and they would increase to 2 , $ 41 million after the incentive expires.
“The tax rebate is absolutely critical to this transaction,” Nevan Shokar, associate director of special projects for Detroit Economic Growth Corp., told members of a Detroit city council committee earlier this year during the discussion. on the PA 255 tax allowance, which freezes the property. taxes at levels prior to the improvement of buildings after their renovation. “Without him, the building would not be saved, nor improved.”
“We spent months and months negotiating a complex acquisition and restructuring of the delinquent commercial mortgage,” John Rutledge, founder, chairman and CEO of Oxford Capital, told the city council panel 2 months ago and half.
âWe have also negotiated with Marriott (International Inc.). The product requires a multi-million dollar investment to modernize the physical and mechanical, electrical, plumbing elements as well as some cosmetic upgrades to allow it to retain the Westin flag and, in turn, compete in the market. We’ve put in a lot of time and effort, and it’s a very risky project. It is a very difficult situation. But we are moving, in an effort to save the project, to ultimately reinvest in turning it around over the next few years so that they can recover during this post COVID period. This incentive is an essential incentive for us to be able to justify this very risky investment. “
Farmington Hills-based Friedman Real Estate was the brokerage firm responsible for the transaction.
In March, John Ferchill, head of the Ferchill Group, said in an email to Crain’s that the hotel he remodeled in 2008 for $ 180 million with 453 rooms and condominiums was heading for foreclosure after taking behind on a pair of CMBS loans, one for $ 45. million dollars and another for $ 32 million from Citi Real Estate Funding Inc.
A city document said the deal would prevent the iconic building from being seized.
Ferchill said that “a once in a lifetime event” shattered hotel revenues across the country and forced owners and operators to seek financing deals with their lenders.
âWe are not unique,â ââFerchill said in March. âWe’ve tried everything to work with a lender that won’t work with us, which is quite a testament to the quality of a property we’ve created. They’d rather take it for themselves rather than settle it with the borrower. We haven’t received a single grant. “
In December 2020, Crain’s announced that the hotel’s appraised value had fallen from $ 136 million at the end of 2019 to $ 74.6 million in September, slightly less than the outstanding balance of the pair of CMBS loans that Ferchill has. contracted in early 2020 just as the COVID -19 pandemic was making its way into the United States
A valuation in May pushed the value to $ 82.3 million.
Data from Trepp LLC, which tracks CMBS debt performance, shows that in 2020 the hotel generated just $ 9 million in revenue, compared to $ 38.7 million when the loans were issued. Net operating income increased from $ 9.8 million to $ 2.3 million.
The building opened in 1924 as the Book-Cadillac Hotel and was vacant and in disrepair for more than two decades before the redevelopment, one of many large-scale projects that helped start a wave of rehabilitation of buildings in the city center.
The Book Cadillac is one of the best-known hotels in the Detroit area, but it closed much of the spring of 2020 at the start of the pandemic, which crushed the hospitality industry.
Earlier this year, Oxford Capital and Farmington Hills-based Hunter Pasteur Homes began construction on another hotel, the 227-room Godfrey Hotel on Michigan Avenue between Trumbull and Eighth. A multi-family component is also planned.
Taconic Capital is also no stranger to the Detroit area real estate market. The company, in a joint venture with Axonic Capital LLC in New York, owns the 1 million square foot Galleria Officeentre building in Southfield which it purchased in 2016.