Hotel Chelsea's Money-Sucking Renovation Is Taking Forever

It's been awhile since we've heard anything about the Hotel Chelsea, but don't worry—it's still there, and it's still kind of a mess. The Journal checked in on the property, which has been undergoing a high-end conversion since 2011, and suffice it to say, things aren't going as planned. The current owners—William Ackman of Pershing Square Capital Management LP, Joseph Steinberg of Leucadia National Corp., and real estate investment firm Wheelock Street Capital—took control of the property in 2013 from Joseph Chetrit. Chetrit got things off to a bad start, and now the hotel is basically just eating money. The Journal reports that the owners have already spent about $130 million on the project, and they are now way over budget. To they are currently looking to refinance the debt, take out some more loans, and find an equity partner who can help finish the job. The main reason things are so expensive and taking so long? The eclectic hotel's rent-stabilized tenants.

Since the early 1900s, the hotel has attracted creative types, and since the 1960s, it has been a haven for artists, writers, and musicians. Bob Dylan, Stanley Kubrick, Jasper Johns, Patty Smith, and Leonard Cohen are just a few of the famous names who have called the Hotel Chelsea home. Most of the current tenants are artists who have lived in the hotel for decades, and before Chetrit came in, they were used to "unconventional rent-collection policies," as the Journal puts it—sometimes the owners would accept a piece of artwork as payment—so it was no surprise when they resisted changes.

Chetrit pretty much immediately clashed with the tenants—they sued him over horrible living conditions, and he peaced out— but the new owners are trying to do right by the people who call this building home. They made an agreement with the tenants soon after taking control that allows tenants to move to a different apartment or stay at a hotel while renovations are happening. CEO of Chelsea Hotels, Edward Scheetz, shared a nugget of wisdom that could benefit a lot of landlords: "If you are fighting tenants like the previous owner, it is hard to get anything done. If they are not happy, they won't want you to succeed, and they have a lot of remedies they can use."

But even with happy tenants, construction is still crawling because entire floors can't be closed at one time. The 1884 Queen Anne-style building was in a terrible state of disrepair long before it sold. As the Journal wisely writes, "The Hotel Chelsea is a reminder that even sophisticated investors can underestimate a project's expense and complexity when it involves longtime tenants, older buildings and extensive work."

When it does open in 2017, the Hotel Chelsea will have 120 deluxe rooms and suites—and probably some condos, too, though the owners have not elaborated on that aspect of the plan. A spokesperson would only say that it was "always going to be a hotel-residential mix," but a Curbed tipster said that there will be "20-30 condos mixed into the hotel when the whole thing reopens." The building currently has 58 apartments, so could half of those be converted?
· Hotel Chelsea Upgrade Hits a Snag [WSJ]
· Culture and Chaos: A Comic History of the Hotel Chelsea [Curbed]
· All Hotel Chelsea coverage [Curbed]