Dubai World’s troubles have hit the Big Apple. Istithmar World Capital, the private equity arm of the Dubai government-controlled holding company, funded $282m in to build the posh W Hotel in Manhattan’s Union Square in 2006, paying $50m in cash and borrowing the remaining $232m. On Tuesday, the building sold at auction for $2m. The winning bidder, according to The Wall Street Journal, was LEM Mezzanine, a private-equity fund affiliated with property-investment firm Lubert-Adler Partners. But as a subordinate debt holder on the hotel, LEM Mezzanine didn’t have to pay cash for its winning bid, and could have bid up to $20m of its debt against the hotel without putting up any cash. According to the WSJ, while there were few bidders, the scene at the auction was intense, and included multiple closed-door meetings between representatives from LEM, Istithmar and the auction company. While LEM didn’t have to front any cash to gain control of the property, it will have to cure $97m in outstanding debt that supersedes its claim on the development. According to LEM’s Web site, the fund has more than $200m to invest to originate mezzanine loans and purchase existing senior and subordinate debt. It’s good news for the market, as absent the LEM acquisition, CMBS investors would have likely been forced to wait six months, if not longer, to get paid by Istithmar. The deal comes with no government intervention, either, a sign that the market can still find a way to recovery. Write to Austin Kilgore.