The new owner of the Chelsea Piers entertainment complex inherited a venue that rests on 12,200 aged wooden piles that require millions of dollars’ worth of care every year to prevent the whole thing from sinking into the Hudson. But what really keeps it afloat is a bedrock clientele shelling out premium sums for space to play, work out or produce film and TV.
That’s all according to a little-noticed 2022 report prepared for the nonprofit that leases state land to Chelsea Piers, which was developed in 1995 by Roland Betts. Betts in December sold the sports complex to Midtown-based real estate investment trust Vici Properties for $343 million, according to the firm’s annual report. As part of the transaction, Vici leased back Chelsea Piers to Betts for 32 years at an initial annual rent of $24 million, with a 10-year extension envisioned.
The deal means Vici, whose 127 million square-foot portfolio also includes the land underneath Caesars Palace and the Venetian in Las Vegas, now controls a nearly 800,000 square-foot complex filled with bowling alleys, batting cages, golf ranges, ice rinks, a fitness center, an indoor soccer field, film and TV studios and event space, plus docking spots for tour boats and yachts.
Vici made the deal because more than 4 million visitors cross the busy West Side Highway each year to reach Chelsea Piers, more than the 3 million that go to the Metropolitan Museum of Art. What’s more, the complex commands pricing power on par with Knicks tickets. A bowling lane for two and a half hours this weekend costs $328 for a family of four, shoes included. Private time on the ice costs $1,000 an hour, according to a 2022 report by an independent appraiser.
Over its 30-year existence Chelsea Piers has maintained “consistent margin profile,” Vici told investors in December, noting that 17 million golf balls are hit annually at the golf ranges.
“The recreational sports industry benefits from resilient demand as consumers, specifically parents, look to cut costs in other areas of spending before trimming back spending on their children,” the landlord wrote. “The core Chelsea Piers experience…cannot be digitized or disrupted.”
That experience produces several different streams of annual revenue for Chelsea Piers, including $5 million from the marina, $4 million from the fitness club, $3 million from catering for birthday parties and other events, and $2 million from the golf club, according to the 2022 appraisal for the Hudson River Park Trust. The nonprofit leases the state-owned property on which Chelsea Piers rests to Vici in exchange for $9 million a year in rent, according to a spokeswoman.
Vici, which didn’t respond to requests for comment, is the rare commercial REIT whose stock is worth more than in prepandemic times. It trades for about $30 a share. Last week Moody’s raised Vici’s outlook to “positive” from stable, praising its 100% occupied portfolio and “resilient” cash flow.
Chelsea Piers’ long-range fortunes will be closely tethered to the impact of climate change. Hurricane Sandy caused $15 million worth of damage. The complex’s operator has spent more than $80 million since 2010 shoring up the century-old piles underneath the massive structure so they won’t dissolve into the Hudson due to marine rot or damage caused by wood-devouring mollusks called shipworms. Chelsea Piers will require at least $3 million annually in “continuing underwater capital repair,” the park trust’s adviser said.
“Chelsea Piers, as a ‘net’ lessee for an older waterfront property in a park setting, is obligated to perform a variety of extensive capital maintenance responsibilities and undertake public improvements that are not typical for inland tenants or tenants on private property,” wrote the adviser, Appraisers and Planners Inc.
So long as the tides remain calm, Chelsea Piers upkeep costs should remain manageable and its new owner can harvest cash from club memberships and birthday parties.
Chelsea Piers’ single most valuable asset is its 240,000 square feet of film and TV studio space on the premises. The space will produce $14 million in leasing revenue this year, the appraiser estimated, based on a comparable space at 333 Johnson Ave. in Williamsburg where Netflix pays an estimated $65 a square foot for 170,000 square feet of production space.
While Chelsea Piers studios are “inferior in utility” to the Brooklyn space, the appraiser said, “they are in a more desirable location in Manhattan where there is also a limited supply of film production space.”
Aaron Elstein , 2024-03-07 11:03:02
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