The Hotel Industry Is Hot, Hot, Hot

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The New York Sun

The strong demand for accommodation in Manhattan has resulted in healthy growth in the lodging market, and many are saying better is yet to come.

“The positive hospitality investment climate will continue for at least the next two years and urban environments will see the greatest investment activity in the next 12 months,” a survey of senior executives attending New York University’s 28th Annual International Hospitality Industry Investment Conference last week said.

“In 2005, a record 41 million visitors experienced the excitement of New York City,” the president and CEO of NYC & Company, Christyne Nicholas, said. She projects another banner year in 2006.

The city’s hotel industry last year registered an increase in revenue of 18% compared with 2004. Meanwhile, the overall occupancy of 85% and average room rate of $232.31 exceeded the historical peak achieved in 2000. Continued revenue growth in excess of 12% is expected in 2006, primarily fueled by a strong growth in the average room rate due to such factors as an improved economic climate, strong barriers to entry, and limited new supply.

“Travel and tourism is now the catalyst for growth in New York City for hotels, restaurants, and allied industries,” the chairman of Loews Hotel, Jonathan Tisch, who is also chairman of NYC & Company, said. “The travel and tourism industry is now spreading to all four boroughs.We have an administration that is committed to aiding the tourism industry, providing funding for marketing our city nationally and internationally.”

“New York City is the strongest hotel market in the world,” the principal and managing director of Sonnenblick Goldman LLC, Mark Gordon, said. “The market fundamentals continue to be extremely strong and we don’t see any material changes in the supply demand imbalance for the foreseeable future.”

“Hotel activity, occupancy, and the increase in the average room rates in the city have reached levels to justify new hotel activity,” the chairman of global resources at CB Richard Ellis, Stephen Siegel, said. “Prior conversions to condominiums has diminished the number of rooms to justify new developments.”

Industry leaders expect that only a few hotels will be sold for conversion into residential condominiums.”Many hotels do not have the attributes that make for valuable residential conversions, features such as high ceilings, large rooms, and interesting architectural details,” the CEO of Lodging Investment Advisors, Sean Hennessey, said. “There may be some more conversions in the future, but most of the more desirable properties have already been taken.”

The national chairman of Greenberg Traurig LP’s real estate practice, Robert Ivanhoe, agrees. “The bud is off the rose a bit in terms of conversion of existing hotels to condos,” he said. “Condo values may have peaked, and the hospitality sector is strengthening.”

There have been some recent moves toward conversion of hotels.

In April, Macklowe Properties purchased the 495-room Swissotel, Drake New York at ParkAvenue and East 56th Street for about $450 million, or $910,000 a room. It plans to demolish the building to make way for a 70-story mixed-use residential condominium. Later this month, the winning bidder is expected to be selected for the 130-room Surrey Hotel at 20 E. 76th St.The hotel is to be sold and renovated as a cooperative hotel with the rules and regulations of a condominium.

In January, the hotel operators and condominium developers Simon Elias and Izak Senhabar purchased the 176-room Mark Hotel at 25 E. 77th St. and Madison Avenue.They paid about $150 million, or about $850,000 a room, to the Mandarin Oriental Company.

Both the Surrey and the Mark are under long-term ground leases and cannot be sold as condominiums.

Industry leaders expect the Hotel Plaza Athenee at 37 East 64th Street at Madison Avenue to be sold and converted into a condominium, while the Eastgate Tower hotel at 222 E. 39th St. at Lexington Avenue and the Beekman Tower at 3 Mitchell Place on First Avenue will be sold to an investor and con tinue to be operated as a hotel.

“The hotel market is on fire, and the large number of rooms that have been or are being converted to residential use, I fail to see the rationale for investing in hotels on a ‘cash flow basis’ given historically tight cap rates applied to these spiked net operating incomes,” the president of Dividend Capital Total Realty Trust, Marc Warren, said.

“From an investment perspective, hotel assets seem to be as favorable as any category of real estate investment,” a director at Eastern Consolidate Properties, Alan Miller, said.

New hotels are planned for all the boroughs and neighboring areas. A total of 3,119 rooms,or 19 properties,may enter the Manhattan market in 2006 and in 2007, including 10 limited-service and seven boutique hotels.

Last month, the 80-room Rockefeller Center Hotel opened at 25 W. 51st St. The hotel occupies the first six floors of a new 25-story building.

Next month, the Marriott Courtyard New York Manhattan, Upper East Side, at 410 E. 92nd St. will open, the fourth Courtyard in Manhattan.

Later this year, the New York Marriott at the Brooklyn Bridge will open an additional 280 rooms. It is the only full-service hotel in Brooklyn.

McSam Hotel LLC has more than a dozen budget hotels in various stages of development.”This builder feels that the market is ripe for a few thousand more hotel rooms to add to the supply of affordable nightly rooms in a tight market than can surely use them,” Mr. Miller said.Later this year,McSam will be opening a hotel at the corner of Fifth Avenue and 35th Street and begin construction on a boutique hotel at Union Square.

Next summer, the W Hoboken Hotel and Residence is scheduled to open.The waterfront property with a 225-room hotel and 40 luxury residences will be developed and owned byApplied Development Company.The hotel will be situated within steps of Frank Sinatra Park and other Hoboken attractions.

Earlier this month, the LeFrak Organization and Melvin Simon & Associates announced the groundbreaking of the Westin Jersey City, a waterfront hotel in the Newport mixed-used development in Jersey City.The 26-story hotel will include 429 guest rooms,a conference center, and a 10,000-square-foot ballroom. Expected to open in summer 2008, the hotel will be managed by Westin.

Last month, the Ritz Carlton Hotel Company and developer Louis R.Cappelli announced plans to open a 123-room luxury hotel with more than 400 private condominiums in downtown White Plains.The Ritz Carlton,Westchester will be housed within two 40-story towers at the intersection of Main Street and Mamaroneck Avenue. Mr. Cappelli is planning another hotel in LeCount Square in New Rochelle and a hotel in the downtown redevelopment in Yonkers.

Two hotels are in the planning stages at the Southern Western Executive Park in White Plains. They include a 150-room Hampton Inn and a Residence Inn by Marriott.

The expansion of the Javits Center will fuel the demand for additional hotel rooms.”Expansion of the Javits center will result in a new 1,500-room hotel at West 35th Street and Eleventh Avenue, next to the expanded no. 7 subway line,” Mr.Tisch said.

“Once you put a shovel in the ground, you will see all of the older structures in the surrounding area being incorporated into travel and tourism. If we don’t build the addition now, we are going to miss the window of opportunity,” the president of International Hotel Network, Sumner Baye, said.

“More hotels are needed for the Javits Center. The city is not equipped to handle the transportation at this point to facilitate an expansion, and the area surrounding the center lacks an amenity base to support significant lodging development,” Mr. Gordon said.

The International head of hospitality lending at HSH Nordbank, Frank Andersen said, “We will see an increase in boutique/lifestyle hotels and convention-type hotel in the city, the increase in these types are important for Manhattan in connection with expanding the Convention Center.

It is evident that the hospitality industry is a driving force in New York and is expected to continue to be so for the foreseeable future.

Mr. Stoler is a television broadcaster and senior vice president at a title insurance company in New York. He can be reached at mstoler@newyorkrealestatetv.com.


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