As hotel demand was crawling out of pandemic-era lows in 2022, Lloyd Goldman’s luxury resort on Montauk Beach was lauded as a beacon of hope.
Goldman’s BLDG Management, in partnership with George Filopoulos’ Metrovest Equities had spruced up the 149-key Gurney’s Montauk Resort and Seawater Spa in 2014, heading off Covid-spurred inflation, labor shortages and construction delays.
The $54 million job renovated guest rooms and restaurants, and tacked on a $16.4 million spa designed to pump seawater into an indoor swimming pool overlooking the Atlantic Ocean.
DBRS Morningstar said the 20-acre resort had “performed extremely well” during the pandemic, thanks to the flocks of New Yorkers seeking get-aways within driving distance.
And then, that performance fell off one of Montauk’s cliffs.
After nearly three years of deteriorating cash flow, the $217 million loan tied to the hotel landed in special servicing last month after Goldman failed to repay, refinance or extend the mortgage before maturity, according to Trepp.
BLDG Chief Operating Officer Justin Kleinman said the transfer stemmed from an “administrative issue” that delayed the loan extension but has since “been resolved.”
“We expect the extension to be confirmed in the coming days,” Kleinman said. “The hotel continues to thrive and remains an outstanding asset in the portfolio.”
Special servicer commentary from December noted the sponsor aimed to refinance the loan before maturity, signaling “this special servicing transfer could be short-lived,” according to Trepp.
But Trepp’s news arm Commercial Real Estate Direct also said the asset had “substantially underperformed expectations,” a qualitative analysis with the data to back it.
Revenue as of June covered less than half of monthly mortgage payments on the floating-rate loan, compared to 2.6 times debt service when the loan was made in 2021, according to Morningstar Credit.
The question of what went wrong may come down to post-pandemic hospitality trends and the bi-annual seachange in Montauk’s allure.
As travel restrictions loosened in late 2021, pent-up demand for fly-to vacations drove a pop in airline travel. By 2023, the volume of airline passengers had doubled year over year.
That frenzy meant lighter demand for local destinations. Occupancy rates at Gurney’s Montauk fit that narrative, slipping from 71 percent in 2021 to 61 percent in 2022 and 59 percent in 2023, according to Morningstar Credit.
The resort’s short season likely played a role, too. Montauk is a summer destination, meaning crowds dwindle after Labor Day until Memorial Day’s start to the season.
While BLDG and Metrovest winterized some guest rooms and renovated the spa to boost appeal in the colder months, Morningstar noted that the winter season “contributes to a significant level of cash flow volatility at the property throughout the year.”
Those seasonal challenges may have driven BLDG and Metrovest’s sale of Montauk Yacht Club in 2023 — a deal that fetched a record-breaking $149 million five years after the team acquired the asset. The year prior, the partners had offloaded Gurney’s Newport Resort & Marina on Goat Island off the coast of Rhode Island, another sale just five years after purchase.
Amid those deals, Goldman lost his partner Filopoulos to pancreatic cancer. The Metrovest head, which bought Gurney’s Resorts, died at the age of 54 in August 2023, according to the Hamptons publication 27east.
What comes next for Gurney’s Montauk Resort lies in the hands of Goldman’s workout guy and the special servicer.
The $217 million loan has two one-year extension options left, but Goldman would need to buy a $4.6 million interest-rate cap to secure one, according to Trepp’s CRE Direct.
The cap would have been “a hefty pill to swallow, given the property’s cash flow,” the publication said.
This article has been updated with a comment from BLDG and additional context.
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