London-based Reuben Brothers has been snapping up distressed properties in the pandemic, including the $151.2-million purchase of The Surrey in New York.
Linda Moss is a staff writer for CoStar News, published by CoStar Group. CoStar Group is the parent company of STR, and HNN is a division of STR. This story has been edited to HNN style.
NEW YORK—British billionaire brothers Simon and David Reuben are extending their aggressive U.S. commercial real estate buying spree, acquiring The Surrey hotel in New York City for $151.15 million as the latest distressed property they've scooped up in the pandemic.
Their London-based company, Reuben Brothers, bought the 189-room upscale property at 20 E. 76th St. on the Upper East Side of Manhattan from the Kaufman Organization of New York, according to CoStar data. Over the decades, the posh hotel has hosted visitors such as Claudette Colbert and Bette Davis and is home to the Michelin-starred Café Boulud restaurant.
Reuben Brothers bought the Surrey, in what may be New York's highest-price hotel deal this year, through Metro International Trade Services, an approved London Metal Exchange warehouse acquired by a Reuben Brothers affiliate in 2015, according to CoStar data. Reuben Brothers didn't respond to a request for additional information and Edward Hart, CEO of the Kaufman Organization, declined to comment.
Reuben Brothers is a private real estate investment and development firm led by Simon and David Reuben, self-made real estate tycoons whose global portfolio includes a large presence in London. This year, the Sunday Times declared them the second-richest family in the United Kingdom.
The Reuben brothers rose from humble beginnings to become international real estate magnates who get about on their multimillion-dollar, 241-foot-long yacht and large private jet. Forbes pegged their combined net worth at $14.4 billion. They were born in India to Iraqi-Jewish parents, and the family moved to London when they were teens. David eventually started a scrap metal business, and Simon imported carpets. They made their first fortune when they invested and traded in aluminum in Russia at a time when Western companies wouldn’t do business there, considering it too risky.
Now they’ve created a real estate empire anchored by a London portfolio that includes properties such as 100 Pall Mall, Millbank Tower, Burlington Arcade and Cambridge House. The brothers have also attempted to make sports acquisitions, as part of a consortium that pulled back a bid earlier this year for the Newcastle United soccer team. They also reportedly explored making a bid for the New York Mets baseball team this year.
Since the start of the COVID-19 outbreak, Reuben Brothers has made a flurry of acquisitions in the distressed U.S. commercial real estate market, mainly in hotels, as well as picking up several prominent retail properties. There are many bargains to be had and opportunities in the hospitality industry, which has been devastated by pandemic-related closures and the dramatic decline in leisure and business travel.
The Surrey sale was first reported by Bloomberg News, which said the final price was well below the original $215 million asking price. As such, it would be just the latest Manhattan hospitality property to be trading hands at a discount amid the pandemic, which struck New York harder than any other part of the nation earlier this year.
Biggest New York hotel sale
Yet even at that bargain price, the Surrey transaction edged out as this year's most expensive in New York the $147.36 million sale on Sept. 30 of 140 W. 28th St., a dual-branded property, Spring Hill Suites and Marriott TownPlace Suites, according to CoStar data.
New York hotels have been hit hard, but so have properties in other areas, such as Florida.
This month, Reuben Brothers, which also does debt financing, assumed the $135 million mortgage for the St. Regis Bal Harbour Resort in Miami Beach, Florida. The brothers also acquired what they described as a "significant minority stake" in the JW Marriott Miami Turnberry Resort & Spa in Avenura, Florida, in September.
Since the start of the outbreak, Reuben Brothers also purchased a substantial stake in the senior mortgage on St. Regis Chicago, once known as Vista Tower; acquired a significant stake in the senior loan on the Drew Hotel in Las Vegas; and funded a $275 million senior mezzanine loan for the Century Plaza development in Los Angeles, an investment that follows its purchase a few months earlier of a stake in the senior mortgage held against the project.
The Surrey hotel, dating back to 1926, has a storied history.
The firm also sought out and acquired trophy retail sites on both U.S. coasts.
Last month, Reuben Brothers purchased two adjoining landmark storefront retail properties at 457-459 N. Rodeo Drive in Beverly Hills, California, for $122 million, or about $10,495 per square foot. The address, at 11,625 square feet, is home to the flagship stores of luxury apparel retailers Alexander McQueen and Brioni. The buyer of those storefronts was initially just identified as a "a private European-based family," but Reuben Brothers now acknowledges on its website that it acquired them.
Reuben Brothers earlier this year acquired 609 Fifth Ave., a retail-office condominium, for $168 million from SL Green Realty, a New York-based real estate investment trust. Starting in 2018, SL Green undertook an extensive repositioning of that building, which is located at the bustling corner of Fifth Avenue and 49th Street, revamping its storefront level. It landed two major tenants for the retail condominium: sports apparel retailer Puma, which took a 15-year lease for a 24,000-square-foot flagship store, and Vince, a global luxury apparel and accessories brand, which signed a 10-year lease for 5,000 square feet.
The pandemic outbreak shattered New York's hospitality industry, with the temporary shutdowns of hotels as well as tourist attractions such as Broadway and the halt of business travel, leaving rooms empty. A number of hotels have closed.
The occupancy rate for New York hotels, just for those rooms that remain open, was just 38.6% in October, according to Jan Freitag, SVP of lodging insights for travel research firm STR, which is owned by CoStar Group. The occupancy rate for all hotel rooms, the city's total inventory, was 27.3%, he said.
The difference in the percentages indicates that roughly 29%, or nearly one third, of city hotel rooms remained closed in October, he said.
The situation has created a buyer's market for hotels in New York.
Earlier this year, the Royalton Hotel at 44 W. 44th St. was purchased by MCR for $42 million from Boston-based Rockport Group, which had acquired it in August 2017 for $53 million, according to CoStar data. And in a second separate deal, Magna Hospitality Group bought the Embassy Suites Midtown at 60 W. 37th St. for $115.1 million from Ashford Hospitality, a steep drop from the $195 million that Ashford paid in January 2019.
The Surrey hotel filed for bankruptcy earlier this year when the owner of its ground lease, Ashkenazy Acquisition, filed for Chapter 11 after the hotel's operator missed payments, according to several media reports.
On its website, Reuben Brothers has already noted its purchase of The Surrey.
"Steps away from Central Park, world-class museums, and Madison Avenue shopping, the hotel features Cornelia Spa and Daniel Boulud’s Michelin-starred Café Boulud," the site says. "It is New York City's only Relais & Châteaux hotel. Built in 1926 as a residence hotel, the original Surrey was home to many of New York’s most eccentric celebrities. JFK, Bette Davis, Claudette Colbert, and other famous faces who recognized the allure of exceptional, discreet service."