Waldorf Astoria for sale

This one is going to be fun to watch. $2B of risk capital deployed in 2014, followed by another $2B capital deployed in (blended) circa 2021. By the time they sell, will average out to $4B deployed 9 years prior. And will sell for $3B? Good heavens…

in fairness, it looks like the $3bn sale might not include the condo part of the building, right?

I just made up $3B as my estimate of what “seller doesn't expect to get all its costs back on a sale” might mean, and I assume not getting one’s costs back includes what the condos might fetch.

FWIW, $175M or so of condos seem sold, and 48 out of 372. No bueno. I don’t think anyone’s paying $3B for 375 hotel rooms, it’d have to include the condos to fetch a price like that.

What do you think a fair price for it is (assuming the sale includes unsold condos)?

I don’t have a great idea, but here’s what I could gather:

- They had 611K sq ft of residential RE to sell.
- They’ve have trouble achieving even $3000 ppsf on the $172M they’ve sold.
- The residential RE pays half the taxes, etc.

So on paper 611K * $3000 * 2 = $3.66B. But…

- I’d want to sell in a reasonable amount of time (2 yrs average), so better drop prices by ~20%, so $2500 ppsf.
- I’m gonna pay 10% in transaction costs and 2 years of carry.
- I’d want capital to return 20% over 2 years.
- I’d want 5% for labor & effort.

I think that works out to $2500 / 1.35 = $1850 ppsf. So my price would be 611k * $1850 * 2 = $2.25B. I’m pretty sure the buyer will have rosier projections and pay more like $3B, which will in (my) expectation put them in the red when all is said and done. But that’d put them in good company with a long & storied list of NYC RE investors.

The condo filing plan total price is $1.1bn. Residential space of 611k may not sellable space. With high amenity building and small apartments it could be 30-40% less. CD180101. 20% discount. $900mm. Less $172mm, $728mm remaining. Not included in the sale if you were to go by the attached.

$2mm per key. $750mm.

I am sure some desirable retail and convention space which I have no idea how to value.

May be $1bn total ex condos.

https://www.hotelinvestmenttoday.com/Deals/Mergers-and-Acquistions/Waldorf-Astoria-New-York-for-sale-WSJ

https://offeringplandatasearch.ag.ny.gov/REF/welcome.jsp

If I were going to be interested at all, I can't see taking one of the condos vs the hotel and not the other. Too much cross risk of the one you don't control failing and dragging the other down with it.

>> The condo filing plan total price is $1.1bn. Residential space of 611k may not sellable space.

What are you basing that off of? The original filing plan shows Schedule A on page 108. It has the square footage of all residential units as well as hotel, retail, and club. The total offering price is listed as $440M, because not all the condos have a price. That’s the number quoted in many articles, alongside 375 apts, but that obviously makes no sense. I’m guessing your $1.1b comes from similar news slop.

In terms of unused space, the building was sold as 1.6M sq ft of space, and the Schedule A lists 1.389M between the residential and other spaces. I didn’t look to see the exact definition of residential sq ft and whether it includes proportion of common spaces, but it doesn’t matter because the ppsf they’ve been selling is off the same standard.

OTOH, I wouldn’t really buy this place thinking I could sell in reasonable time at $2500 ppsf just because they sold 10% of the space at $3000 ppsf after years of marketing. So drop my bid down to be based $2000 ppsf target sale price, which I guess puts it at $1.8B?

When you take a large percentage of the hotel rooms and convert them to condos you recoup your purchase and renovation cost quicker. However, since the condo units have a low occupancy rate you decrease the value of the hotel investment because with a low occupancy rate the condos are spending less on food and drink at the hotel. This is very true in this situation where the condo units were created by combing smaller hotel rooms into larger condo units

Nada, Total Price from Amendment 13. But missed the fact that many of unit prices are not included in schedule A. Residential condo units total square footage is indeed what you stated 609,000. As per your calcs, bulk sale may indeed get $2.25bn.

Separately, I looked at the listings. Ignoring the staging furniture and drapes, which in many cases are too brown, the units are overdone for small spaces and from what I can tell low ceilings. The size of ceiling moldings acting as light soffits are bit too much for this spaces.

It's a building and location that isn't a great fit for the 21st Century.

This is one of those threads with too many numbers, but I wanted to throw out a note of appreciation for inonada's tip of a year or so ago to think more about international stocks. The allocation in that area outperformed the U.S. allocation by 10%! Any other crumbs you want to throw out for those of us who don't have a clue are always appreciated.

a large part of international stock appreciation during the past year has been due to the dollar falling against the Euro and other currencies. If the Fed lowers interest rates again ,the dollar will fall more.

300>> and from what I can tell low ceilings. The size of ceiling moldings acting as light soffits are bit too much for this spaces.

This is why I think the residential portion is doomed. You can’t take spaces meant to hold 400 sq ft rooms, maybe some 800 sq ft suites, and combo it into appealing 3000 sq ft apts at $4000 ppsf. And there’s only so much demand for 400 sq ft studios and and 800 sq ft 1BRs at $4000 ppsf with high monthlies.

MCR>> The allocation in that area outperformed the U.S. allocation by 10%!

Even a broken clock is right twice a day.

I’m surprised you don’t see something even higher. Last year, I deployed fresh cash into (the mutual fund equivalent) of VEA (developed market ex-US) on Feb 3. It looks up 44%. VWO (emerging markets) is up 35%. About 10% of both those is driven by a weakened dollar (i.e., value of foreign anything is up in USD terms). VOO (S&P 500) is up 16%.

>> Any other crumbs you want to throw out for those of us who don't have a clue are always appreciated.

My suggestion to those who don’t have a clue is to be a Boglehead. Pick a stock vs. bonds allocation plan, stick with it for decades, and rebalance quarterly or whatever. Distribute your stocks globally according to index weights. VT (or equivalent) does the trick, although there may be tax benefits to doing the equivalent with two funds (one for US, another for non-US). Don’t performance-chase and avoid taxable events like the plague.

My recommendation for those who think they have a clue is the same, doubly so.

My recommendation for those who are sure they have a clue is the same, quadruplely so.

This 16-pager contains everything you need to know, if you can absorb it: https://www.etf.com/docs/IfYouCan.pdf

Having said all that, I put this year’s fresh cash into BRK. Reasoning is very idiosyncratic to me, so I don’t particularly recommend it to anyone.

I had (and continue to have) the same dollar falling thesis, so did gold and silver last year (I already had international stocks in portfolio, and commodities was identified as a gap.

Right now I am buying software index - I think it might be oversold

I cannot do single stocks, but very curious about your BRK idiosyncratic thesis :)

so how is it that they spent $2bn in renovation of Waldorf Astoria and the place is worth a little bit over $2bn... was the original building and land worth very little? or did they massively overspend on renovation? (what would be the reason that they overspent, was it possible to do it for less?)

thx Nada (and value and Krolik)!

>> I cannot do single stocks, but very curious about your BRK idiosyncratic thesis

The idiosyncrasies are about me, not BRK.

I generally can’t be bothered with doing single stocks these days. It’s not entertaining to me anymore, and I’d rather leave it in the hands of professionals who are 10x more skilled (and focused on it) than me. Or an index. Must be tax-efficient in either case. I’ve had a decent track record of avoiding whatever the speculative herd has piled into and identifying the promising boring corners that have been left for dead. I’m also decent at identifying the ~1% of investment professionals that are skilled, versus the ~99% that are not.

I was looking for more long-term exposure to stocks. My VEA-equivalent (developed ex-US) had a great run, which makes it less compelling, and I am way overweight already. VWO (emerging markets) does not really provide value over VEA, as it “should”, and I (somewhat illogically) cannot stand the minority portion that’d be in over-inflated Indian stocks. I don’t care to have any US growth companies, because of valuations. US value companies are acceptable, if just barely. So if I’m thinking a US value index, why not go with a conglomerate of US value companies, especially a tax-efficient one that is part of the ~1% of investment professionals with skill?

By my estimation, BRK is 75% value companies with a P/E of 16 with a tax-efficient “forever” holding period, arguably holding an edge over an index of value companies, plus a 25% cash pile. Some people hate the cash pile, but I don’t. I keep a cash pile anyways. If/when it comes time to deploy the cash pile, they’ll know it just as well as me, if not better, and they’ll be 10x better at deploying it. Expense ratio is negligible thanks to Buffet’s and now Abel et al’s largesse.

That’s about as deep as my “thesis” goes. It’s an incremental direction in which I changed the allocation of my personal capital this year in light if everything else I’m exposed to (by stasis).

I know nothing about BRK and have done no research but just curious, is there any gap in BRK PE vs the avg PE of companies in its portfolio? Like, is there any premium for buying these companies via BRK vs directly?

Also, very much agreed about the crazy valuations of most growth companies, but recently software traded 30-40% down (while continuing to deliver strong earnings). Does that change the picture? Or do you think that is not enough correction? Salesforce is at 20x PE now.

So back to Waldorf Astoria. What do you all think are the reasons for the massive value destruction? 1) overpaid for building/land at the entry - by how much? 2) overspent on renovation - was that avoidable or not? 3) maybe built a product (condos) that does not match market need, and would have been better off with just a hotel?

does this case illustrate that spending money on building/renovating NY real estate is value destroying in general, or is this a one-off case of mismanagement?

Re int'l stocks: glumly eating crow from the sidelines as I watch the feast in progress. Felicitations nada, multi, krolik.

MTH, don’t swear it. No one really knows what’s going to happen in markets with any precision. At best, one’s thesis has a small edge compared to the outcome. At worst, your small edge tends to systematically point in the wrong direction (usually because of behavioral biases). Irrespective, one should never conflate the outcome with the small edge, in either direction.

Krolik>> What do you all think are the reasons for the massive value destruction?

1) I recall reading a story in the last year about the 2014 Anbang deal. The existing owner (Hilton) was interested in selling, and some agents or bankers did a soft analysis and said they could maybe fetch $1.1B (or something like that). After some soft marketing, Anbang came in with a bid of $1.8B. The owner/agents/bankers couldn’t believe it and would’ve taken it on the spot… but didn’t want the buyer to think they were overpaying. They countered at $2.0B, and Anbang offered $1.9B to close the deal. I might have gotten the details wrong, but I’m sure some AI search can dig up the details for you. So yeah, they overpaid vastly—even relative to 2014 prices, which were higher (in nominal terms) than they are now.

2) I have no idea if they over-renovated. My impression on the hotel is “no”. The public areas and rooms had become pretty shabby, and I am glad they restored it to its full grandeur. I highly recommend enjoying the bars & restaurants. Whatever they charge, it’s money well spent. My impression on the condos is “yes”, as they were putting lipstick on a pig and probably overcompensated by putting a lot of the most expensive lipstick (likely more than the rooms).

3) Yeah, there is not much market for $4000+ ppsf condos with high monthlies combo-ed from 400 sq ft rooms with 8’ ceilings. Go figure. It was doomed from the start, IMO. I have seen the rooms exactly once, ~15 years ago, when I visited a friend staying in a two-room suite. Even then, I recall thinking it a particularly uninspiring suite as far as the bones go. Works fabulously as a hotel room, with easy access to the real gem—the public spaces—and not much else.

Krolik,

The final sale price with discounts etc is close to $3bn. $2bn for condos + $1bn for remanining. See above.

They took a long time to complete. So the carry/capital cost is a lot.

Condo product may not be market taste. Not saying doing condo is wrong. This further adds to the carry.

And perhaps overpaid by $500mm in retrospect.

Then you have general market forces - increased level of interest rates and flat overall market in Manhattan if they were assuming 2-3% per year increase in condo prices at the beginning. Hotel room rates are rather strong. That probably met the expectation at the beginning.

>> I know nothing about BRK and have done no research but just curious, is there any gap in BRK PE vs the avg PE of companies in its portfolio? Like, is there any premium for buying these companies via BRK vs directly?

Not really, BRK is composed of more than stock & cash, and that liquid portfolio has a complicated relationship with the operating companies.

BRK is composed of 3 distinct parts, in my head. It’s a $1.075B market cap company. It holds $320B of stocks, $355B of cash (modulo some accounting of certain cash liabilities), and a bunch of operating companies. Most of the operating companies have little in the way of liabilities, so they just generate profits that go to the mother ship for deployment into whatever. The most important special case are the insurance companies. These guys generate modest profit from underwriting. This underwriting produces hefty premiums that also collectively produce $150-$200B of liabilities (in the form of collected premiums that have to be paid in the future). This is the “float” they get to invest however they see fit, atop the underwriting profit. The present value of the liabilities is something like $100-$150B.

The cash and the stocks (modulo a hefty haircut) form the basis of their ability to operate as an insurer. They are so over capitalized ($320B stocks + $355B cash => $675B liquid) relative to the $150B of insurance liabilities that they can insure anything and everything. Uncle Warren can take the cash down to $50B and no regulator or insurance client would bat an eye, because it’d be backed by another $625B of stock behind it, all against $150B in insurance liabilities — to say nothing of the value of the operating companies.

So how does one value the operating companies? I roughly think of it as $1075B market cap - ($355B cash - $150B float liabilities) - $320B stocks = $550B. Earnings of the stock portfolio passes through. Earnings of the $550B includes interest on $150B of float plus actual operating profits. Earnings on $205B of remaining cash is T-bill interest.

That’s my lay breakdown, with my simplistic understanding formed by chatting with AI, not a professional assessment. Again, I do not recommend relying on my assessment for squat.

As to condo product. This is one of the nicer one facing park avenue. A lot of wasted space in the columns which I am sure are included in the square footage. And to rub it in, it interrupts the flow and feel. Ceilings don't seem high. Below Window AC units take up huge space but what to do when you have low ceilings.

Poor color choice of floor and kitchen wood. Too dark for the current market. And I have somewhat dark floors in my apartment. Mirror on top of bathtub. Light on the top of vanity in the second bath. Hexagonal shower head. Soffits on the ceiling. I can go on about poor design choices. In general, a little overdone for small space even after factoring in it is Waldorf Astoria.

https://streeteasy.com/building/waldorf-astoria-residences-new-york/2412?utm_campaign=sale_listing&utm_medium=share&utm_source=web&lstt=8QNDHfN3agR6sfFm3CDDJ0vrngL870JRmpaQpF_AtHsgDh6MSTfPxfEkhY6AF3J8-MRFJBQzTWGGezdZ

Krolik>> Also, very much agreed about the crazy valuations of most growth companies, but recently software traded 30-40% down (while continuing to deliver strong earnings). Does that change the picture? Or do you think that is not enough correction? Salesforce is at 20x PE now.

I have no clue. You purchased it, so you tell me ;). What specific index are we talking about?

Wow. $800mm overpaid. No wonder they have to come up with a condo plan to justify the purchase.

----
1) I recall reading a story in the last year about the 2014 Anbang deal. The existing owner (Hilton) was interested in selling, and some agents or bankers did a soft analysis and said they could maybe fetch $1.1B (or something like that). After some soft marketing, Anbang came in with a bid of $1.8B. The owner/agents/bankers couldn’t believe it and would’ve taken it on the spot… but didn’t want the buyer to think they were overpaying. They countered at $2.0B, and Anbang offered $1.9B to close the deal. I might have gotten the details wrong, but I’m sure some AI search can dig up the details for you. So yeah, they overpaid vastly—even relative to 2014 prices, which were higher (in nominal terms) than they are now.

Just thinking aloud. Perhaps condo portion should have been smaller. But who could have predicted in 2014 that the hotel market will be so strong partially due to permanent removal of hotel rooms for housing by the city. And the ultra-luxury market got overbuilt impacting Waldorf condo pricing.

Few years ago I did a tour and actually loved the renovation in the condos, especially the colors. Yes, not the tallest of ceilings, and not the biggest of rooms, but very calm interiors with an appropriate dose of character and not boring. I would not expect to have floor to ceiling windows or super modern systems in an old, historic building. The only criticism is that I thought there were a lot of edges and ornaments, including on the ceiling, which would collect a lot of dust AND be hard to reach to clean. The target customer would probably have a cleaning crew regularly, so maybe it's not that much of a concern.

The issue is of course the price and the common charges. A lot of inventory on the market in this price category. The location is amazing for a hotel, but not ideal for families with children (don't think there is any playground nearby, probably limited schools). So like almost everything in New York nowadays, the condos seem built for older wealthy childless people. I thought there was an endless supply of such people here, but maybe not.

Will put the common spaces and restaurants at Astoria on my bucket list. Remember it looked cute when I ran thru the lobby to escape the shooting on Park Ave (was walking by Blackstone building at the worst possible time !!!)

@Krolik - Like Eddie and Wallis you don't escape just anywhere do you, you flee in style (and glad you're OK that's scary).

@inonada - I know but everyone was advising me to do just that. I have to learn to listen.

Here’s the article. I got the details wrong, but the gist was about right.

https://www.wsj.com/real-estate/waldorf-astoria-makeover-china-aa24f5d2?st=jW3hu7&reflink=desktopwebshare_permalink

Over breakfast at Manhattan’s Peninsula Hotel 11 years ago this month, the nattily dressed Chinese businessman got straight to the point. He wanted to buy the legendary Waldorf Astoria hotel.

The two American real-estate executives at the table excused themselves to call the chief executive of Hilton, which owned the 1,400-room slice of New York history. Although brokers had advised the two executives that the property was worth a little more than $1 billion, the three men decided to shoot for the moon.

The Americans returned to the table and told Wu Xiaohui he could have it for $2 billion. They were floored when he countered at $1.9. By the end of the day, they had a handshake deal at $1.95 billion.

So began the strange saga of what may be the most complicated and likely the most expensive real estate conversion ever attempted in the U.S. Along the way, Wu landed in prison and the Chinese government took over the property. Deadlines came and went, and the all-in cost of the overhaul eventually ballooned to about $6 billion, according to people involved with the project. Initially proposed as a three-year project, the process stretched to eight years.

Thank you. I hadn't seen the article.

Buyers clearly under-estimated the difficulty of renovating under DOB and LPC rules.

Guy on my floor was in charge of replacing all the windows. He said they were constantly trying to cheap out on renovations. Purchase price explains all of this.