Dubai World's Istithmar unit lost control of the W New York Union Square hotel in a foreclosure auction Tuesday after investing in the property near the top of the real estate market.

LEM, an affiliate of Lubert-Adler Real Estate Funds, won an auction for the mezzanine debt on the luxury Manhattan hotel, which Istithmar bought in 2006 for $285 million. LEM bid $2 million for the debt.

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