The New York Palace Hotel in New York, filled with Shin Dong-bin Lotte Group chairman's memories from his study-abroad days, has finally become wholly owned by Lotte Group, including the land. This comes 10 years after Lotte Group bought the New York Palace Hotel building in 2015. Attention is focusing on the background of the purchase.
According to the related industry on the 17th, Lotte Group decided to buy the land of the New York Palace Hotel in Manhattan, New York, from the Catholic Archdiocese of New York for $490 million (about 723.2 billion won). Adding this to the $850 million (about 900 billion won at the exchange rate at the time) spent to buy the hotel building 10 years ago, the total comes to about 1.6 trillion won.
This can be seen as running counter to Hotel Lotte's recent "asset-light" strategy. The asset-light strategy is to expand business through entrusted operations and brand exports rather than direct investment in real estate. In this context, Hotel Lotte sold hotel assets such as L7 Gangnam in Seoul and L7 Hongdae.
There are several reasons behind Hotel Lotte's decision to purchase the land of the New York Palace Hotel this time. The biggest reason is that the Archdiocese of New York, the landowner, expressed its intention to sell. It was thought unlikely to come on the market as it was classified as religious land, but the situation changed after a sex scandal erupted within the archdiocese.
It was revealed that long-term sexual abuse had occurred within the archdiocese, and in 2019, when New York state enacted the Child Victims Act, lawsuits became possible over cases whose statutes of limitations had already expired. In the process, the size of settlements grew astronomically. The Archdiocese of New York is known to have begun settlement talks with 1,300 sexual abuse victims for at least $300 million (about 420 billion won).
In addition, while reviewing the asset-light strategy, Hotel Lotte found that it would be virtually difficult to sell the New York Palace Hotel, for which it purchased only the building in 2015. It is known that while it was posting a net loss, the land rent roughly tripled over the past 10 years. A Lotte Group official said, "We learned from the contract that it was effectively an asset that could not be easily touched, and with the rent burden on top of that, we determined it was right to buy the land while we could."
The New York Palace Hotel is also a place filled with the memories of Chairman Shin Dong-bin, and Executive Director Jang Sun-yoon of Hotel Lotte has been working for years to globalize the Hotel Lotte brand there. Jang is the eldest daughter of Shin Young-ja, chair of the LOTTE Foundation, and the granddaughter of the late Shin Kyuk-ho, honorary chairman of Lotte Group. Jang moved to the United States in March 2022 as the executive in charge of the New York Palace. She currently serves as head of Hotel Lotte's Americas brand institutional sector. The implication is that it is difficult to easily give up on a hotel imbued with the owner family's memories and efforts. A hotel industry official said, "It may have to do with the owner family, but because Hotel Lotte dreams of a global chain, it would not have wanted to lose a historic hotel in the heart of New York."
Within Lotte Group, Hotel Lotte is said to have agonized greatly during the process of deciding to purchase the New York Palace land. The concern was whether Hotel Lotte could acquire the asset while minimizing the financial burden. A Lotte Group official said, "Hotel Lotte had to support Lotte Engineering & Construction and was in a sensitive financial management situation, so there were concerns."
Hotel Lotte is the No. 2 shareholder of Lotte Engineering & Construction with about 43% equity. The No. 1 shareholder is LOTTE Chemical (44%), but given the slump in the chemical industry, Hotel Lotte is the only entity with the capacity to provide funding or credit support to Lotte Engineering & Construction.
In 2022, Lotte Engineering & Construction carried out a 200 billion won rights offering to secure financial stability. Of that, 86.1 billion won was taken up by Hotel Lotte. In 2023, for SPCs "Charlotte First" and "Charlotte Second," which were established to purchase Lotte Engineering & Construction's guaranteed commercial paper, Hotel Lotte also provided 150 billion won in subordinated lending.
Looking at the details of the capital replenishment agreements in the nature of credit enhancement, the scale is even larger. For the 700 billion won hybrid securities recently issued by Lotte Engineering & Construction, Hotel Lotte agreed to provide a total of 400 billion won in capital replenishment commitments. If Lotte Engineering & Construction cannot pay interest or secure redemption funds, Hotel Lotte promises to pay investors on its behalf.
In the process of purchasing the hotel site by Lotte Group, Lee Jong-hwan, head of strategy for the hotel business unit who recently retired in the 2026 regular personnel reshuffle, is said to have played an important role. Lee first joined the board as an inside director in 2022, resigned in 2023, and rejoined the board this April.
Meanwhile, regarding funding for the land purchase of the New York Palace Hotel, Hotel Lotte said, "We are pursuing financing through securitization of assets we hold and attracting external investment." Hotel Lotte said it has no plans to increase additional borrowing fund for the land purchase. As of the end of last year, Hotel Lotte's debt ratio was about 120%. That is 60 percentage points lower than during COVID-19 (180%).