Korean investors likely to lose from stalled Manhattan project

Korean investors in the 20 Times Square development in Manhattan, New York could potentially face large financial losses as its luxury hotel prepares to shut down for good next month and legal challenges continue over the project’s loans package.

Marriott International announced in May that the 452-room Times Square Edition hotel would close after only one year of operation, as Covid-19 lockdowns badly affect tourism. Marriott warned the hotel’s owner Maefield Development in March that its contract with the developer could be put in default by a cash shortfall from the downturn, according to Bloomberg.   

Maefield Development is also fighting a lawsuit from a group of international senior debt lenders led by French bank Natixis SA that contends $650 million of the $2 billion financing package it put together is in default because of “numerous undischarged mechanics’ liens recorded against the property”. The 20 Times Square site opened in February 2019.

As senior debt lenders try to foreclose on the project, the departure of junior debt lenders, including Korean investors, has become inevitable. South Korea’s AIP Asset Management (36 billion won) and IGIS Asset Management (220 billion won) began to dispose of collateral rights for the project when the hotel operations were suspended in March.

Given that the process of exercising collateral rights generally takes at least two years, it was deemed that there was still a possibility of normalization during that period. However, this has become virtually impossible with Marriott’s decision. Anticipating that the hotel business will remain difficult, Times Square Edition has said it will not be reopening.  

Other Korean investors may also face big losses. It has been confirmed that NH Investment & Securities Co., Ltd. (100 billion won), Lotte Insurance Co., Ltd. (20 billion won), and Shinhan Capital Ltd (100 billion won) invested in mezzanine debts secured against Marriott Edition hotel and its site. Hana Alternative Asset Management Co. Ltd. and Inmark Asset Management Co., Ltd. also invested 170 billion won and 130 billion won respectively of mezzanine debt. 

“NH Investment & Securities, Lotte Insurance and Shinhan Capital have reportedly failed to find any way of resolving the problem, and they have a high risk of losing more than their investment principal,” another source said.

Analysts said it would be difficult for Maefield Development to sign a new hotel management contract.

“Given that Marriott, which signed a management contract to receive an operating fee with Maefield Development, is the largest hotel chain in the world with a well-established reservation system and reward program, it is questionable whether other chains will be able to run a hotel when Marriott has decided to leave,” an investment banking source said. (Reporting by Sehun Jo)