New Orleans’ hotel market is in the middle of an unusually turbulent chapter, as a cluster of marquee properties have quietly — or in some cases very publicly — been put up for sale at steep discounts to their replacement cost or even to valuations from just a few years ago. Brokers, operators and industry analysts say the downturn reflects a mix of national pressures and local complications, creating one of the most buyer-friendly environments the city has seen in more than a decade.
Nothing captures the moment more vividly than the looming sale of Virgin Hotels New Orleans. Built four years ago in the Warehouse District for roughly $80 million, the stylish 238-room property is now expected to sell early next year for about half that amount. The hotel’s financial unraveling has effectively wiped out investors in the fund that financed the project — an “opportunity zone” REIT managed by SkyBridge Capital, the group run by hedge fund manager Anthony Scaramucci, who rose to fame during his brief stint as White House communications director in President Donald Trump’s first term.
Unexpected costs
In November, Bloomberg and other outlets reported that SkyBridge informed investors in a September letter that the REIT — formally the SkyBridge-EJF Opportunity Zone REIT, whose sole asset is Virgin Hotels New Orleans — now expects their equity to be reduced to zero once the sale closes. Despite receiving an appraisal valuing the hotel at $94 million last December, the fund had little practical choice but to sell: rising expenses, especially unexpectedly high insurance premiums and city property taxes, had climbed to levels that made injecting additional capital financially unjustifiable, the letter said.
The troubles at Virgin Hotels highlight the uneasy path of the federal Qualified Opportunity Zones program, created under the 2017 Tax Cuts and Jobs Act during Trump’s first term. The program was designed to incentivize long-term investment and job creation in economically distressed areas, but in practice much of the capital flowed into high-end real estate projects in central business districts — ventures once viewed as “safe,” including Virgin Hotels, the Four Seasons Hotel New Orleans, and other property development projects across the city…