Local firm teaming up with hotelier Schrager
(Crain's) — A local group has agreed to be the lead investor in Ian Schrager's bid to buy the Ambassador East hotel.
Syndicated Equities Corp. has signed a letter of intent to potentially put upward of $15 million of equity into the famed hotelier's bid to revitalize the legendary Gold Coast hotel at 1301 N. State Pkwy., says Richard Kaplan, president and founder of the Chicago-based real estate investment firm.
Mr. Kaplan says his firm's due diligence will be wrapped up in about a month and that the sale to New York-based Schrager Co. could close as early as February.
"I think that Schrager Co. has been able to make an excellent buy, and we feel that the total project and the ultimate cost-per-key is going to allow us to have a product that is attractive for that boutique user," Mr. Kaplan says. "And we're very excited about working with Ian Schrager. He's the genius that has done it time and time again."
Mr. Schrager, a co-founder of New York's famed Studio 54 nightclub in the late 1970s who later became a pioneering developer of boutique hotels, has the Ambassador East under contract but must still hammer out a deal to assume a portion of lender iStar Financial Inc.'s underwater $41-million mortgage on the property.
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Sources say Mr. Schrager's firm would assume about $25 million of the loan, with iStar writing off the balance but structuring a deal that would allow the New York-based lender to share in future profits.
While not many properties are being sold these days in the battered hotel sector, such deal structures are becoming more common, says Rick George, a principal with Hospitality Real Estate Counselors who heads the Denver-based firm's Chicago office.
"The key thing is seller financing. It would not be happening without seller financing," says Mr. George, which in this case is iStar's involvement.
A spokeswoman for Mr. Schrager declines to comment, and a spokesman for iStar didn't return a call late Tuesday.
The Ambassador East is currently owned by local developers Peter Dumon and David Bossy, who bought it for $44.5 million in December 2005.
Mr. Kaplan's Syndicated is perhaps best known for buying retail properties, but has invested in a handful of hotels in recent years, including the Conrad Hotel on Michigan Avenue in conjunction with Chicago-based Lodging Capital Partners LLC.
Syndicated has been working with Lodging Capital on the Ambassador East deal, but it's uncertain whether the firm will invest in the deal or remain in an advisory role, Mr. Kaplan says.
Steven Kisielica, a Lodging Capital principal, confirms that and declines further comment.
HREC's Mr. George, who isn't involved in the transaction, says the involvement of Mr. Schrager along with Syndicated and Lodging Capital — all players with known track records — suggests to him the deal has a good likelihood of materializing.
Mr. Kaplan, whose firm signed on last month, says he's looking to raise money from current investors and others. He says Syndicated also can tap existing funds to make the equity investment in time for a February closing.
Mr. Schrager told Crain's in June that he would change the hotel's name, but hadn't yet determined plans for the once-renowned Pump Room restaurant. Mr. Kaplan says the plans remain undetermined.
"We're going to learn an awful lot (in January) about costs and timelines and budgets and expectations and plans," he says. "The Ambassador East, for some people, still has a name and cachet. Plans aren't definite yet for the Pump Room, but for many people that's a nostalgic venue where we and our parents and our grandparents spent a lot of time."
