Steve Witkoff and Ian Schrager Face Foreclosure at Public Hotel

Steve Witkoff and Ian Schrager appeared to have gotten a handle on the debt at their Public Hotel after falling behind on their mortgage. But financial trouble at the Lower East Side property has persisted, and now it may cost the developers their investment.

Witkoff and Schrager are facing a UCC foreclosure on their equity in the 367-room hotel at 215 Chrystie Street. The partners owe more than $86 million in mezzanine debt, according to a notice for the public auction, which is being handled by Matthew Mannion at Mannion Auctions.

The sale is scheduled for Sept. 12.

The mezzanine lender is the credit-investment firm Värde Partners, sources told The Real Deal. The details of how and when the Minneapolis-based company acquired the debt are unclear.

Witkoff and Schrager previously had a $60 million mezzanine loan from Korean lender Shinhan Investment Corp., which tried to sell the debt in 2020. It’s not clear when Värde purchased the loan, but the LLC that it used to buy the debt was created in October.

Representatives for Witkoff, Schrager and Värde Partners did not immediately respond to requests for comment.

Witkoff and Schrager opened the 28-story building — which includes 11 luxury condos on top of the hotel — in 2017, but were forced to close it when the pandemic hit. The hotel reopened in the summer of 2021 with a star-studded bash, but by the next year the developers had defaulted on their $189 million senior mortgage.

It appears they were able to get current on the loan when Madison Realty Capital and Newbond Holdings bought the debt late last year from Deutsche Bank and Aareal Bank.

The hotel industry has taken large steps forward since the pandemic but distress is rippling through the sector.

In San Francisco, Park Hotels & Resorts last month said it would stop making payments on the $725 million CMBS loan backing the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco.

In New York, Sharif El-Gamal is fighting to hold onto his Margaritaville hotel in Times Square.