Real Estate Insider: Sheldon Yellen is reportedly buying the Townsend Hotel. Here are some challenges ahead.

Cat’s out of the bag.

But the reported pending sale of the Townsend Hotel in downtown Birmingham to a well-known Oakland County businessman won’t be without its challenges moving forward, assuming the deal finalizes.

I’d been hearing for about three weeks that Sheldon Yellen, the CEO of property restoration giant Belfor Holdings Inc., was purchasing the Townsend, long a go-to for professional athletes and celebrities as they swing through Metro Detroit. Chatter about a sale of the hotel in general — with no specific purchaser identified — began as far back as early June.

Then last week, reports started surfacing about said purchase, including by Fox 2 Detroit’s Roop Raj on Twitter and Facebook, as well as Downtown Publications, both attributed to anonymous sources.

The purchase — which has not been confirmed to me by anyone directly involved in the deal, mind you — is believed to be for north of $60 million. I’ve heard prices as high as $75 million and as low as $54 million. We’ll see what the ultimate cost for the 150-room hotel at 100 Townsend St. lands at, but the most credible number I’ve heard is $65 million. That could change, of course.

News reports suggest that all that’s needed is a license transfer, without specifically saying what kind of license.

It’s believed that’s a reference to a liquor license, a process that can take somewhere between four and six months — which could ultimately put the deal still in the works in the first quarter next year, depending on a host of factors and the deal structure. There has been no application submitted for the transfer to the Michigan Liquor Control Commission.

In addition to that long lead time, the hotel faces market challenges as Yellen attempts to buy it.

Like other hotels, the Townsend was severely impacted by the COVID-19 pandemic early in the global health crisis as it fell behind on its commercial mortgage-backed securities debt. However, that issue was ultimately resolved and things appear to be on the upswing — by some metrics.

According to data from New York City-based Trepp LLC, which tracks CMBS data and maintains financial reports on properties that secure CMBS loans, revenue shot to $18.26 million last year, up from $9.66 million in 2020.

However, that still paced well behind 2019, when the hotel pulled in $23.37 million.

Net cash flow was $3.25 million last year, but the hotel lost $70,500 in 2020 and had an NCF of $5.93 million in 2019, so it’s still tracking well behind pre-pandemic levels.

In addition, business travel overall is still lagging behind where it was before the onset of COVID-19 in March 2020. The American Hotel & Lodging Association says that by the end of this year, hotel business travel revenue nationwide will be down $20.7 billion, a drop of 23.1 percent from 2019, my colleague Jack Grieve noted recently.

In Detroit, hotels are expected to be down 24.2 percent in business travel revenue this year, pulling in about $445.26 million, down from $587.1 million, for a loss of $141.84 million, according to the AHLA.

That’s the now.

But what about the future?

The Townsend has faced competition recently as the new luxury The Daxton Hotel opened up nearby on South Old Woodward Avenue at Brown Street in downtown Birmingham.

But we also need to keep in mind that there could be serious additional competition from hotels in Detroit, particularly as the Townsend tries to retain its appeal to professional sports teams.

Primarily, one observer noted: Stephen Ross’ planned Equinox hotel — which would be designed to host pro athletes, if it ever gets built — just south of Little Caesars Arena. But also, said another observer, a long on the books but faltering plan for a new luxury hotel in Midtown.

“I do believe the Townsend will struggle to attract hotel demand from downtown once one or two other luxury hotels open up,” said Brandon Leversee, a locally based vice president of HVS, a hospitality analysis company. “However, any new luxury hotel downtown, whether that’s the Equinox or the Thompson, is at least two years out.”

Let’s also not forget the luxury Edition hotel that’s expected to be an anchor for Dan Gilbert’s development on the site of the former JL Hudson’s department store property, as well.

Leversee said he believes the Townsend has spent more than $5 million since 2018 on renovations but more will be needed “to maintain its relevance” in light of competition in the pipeline and among the recently opened hotels.

I emailed a spokesperson for Yellen on Tuesday morning seeking comment. Yellen has previously referred me to that spokesperson, who has not responded to multiple emails in the last two weeks. Messages were repeatedly left in the last month with hotel ownership and management seeking comment on the sale.

Yellen sold Belfor to private equity in 2019.

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