Investors far and wide want to own hotels in New York City. Why? Hotels are prestigious investments. But believe you me, owning a hotel in New York City can be extremely lucrative as well.

Last week, the Dublin-based Peninsula Real Estate Fund I, a newly formed investment fund, closed on its first purchase in Manhattan. Anglo Irish Bank is the lead investor in the fund, which it formed with Timothy Haskin, a former managing director of Tishman Hotel Corp.

The fund paid $151 million for the 172-room Beekman Tower Hotel and the 187-room Eastgate Tower Hotel, which were owned by Denihan Hospitality Group. The 26-story, Beekman Tower, built in 1928, is at 3 Mitchell Place at East 49th Street and First Avenue and the Eastgate, a 25-story hotel, built in 1971, is at 222 E. 39th St.

These two hotels sold for $420,000 a hotel room. These two properties will be renovated over the next two years and will continue to be operated as hotel properties rather than convert to residential condominiums.

Anglo Irish Bank Private Banking provided $49 million of equity for the purchase, and the bank’s lending unit providing $100 million of debt financing. Earlier in the year, the bank provided debt financing for the purchase of the Mark Hotel on the Upper East Side.

“Given construction costs and land scarcity it is not easy to build a new hotel and make the economics work”the executive vice president of Anglo Irish Bank, Paul Brophy, said. “To build a new luxury hotel now could cost in excess of $1 million per key. You have less market risk when buying an existing hotel with a proven location and trading history — it is a pretty safe bet versus starting a new hotel today, which may take up to three years before the doors are open for business and trading has commenced.”

In September, Korman paid $83.5 million for the 93,000-square-foot, former Sutton Hotel, at 330 East 56th St. It purchased the property from Alchemy Partners, who purchased the property from Glenwood Management in March 2005 for $52.25 million. Alchemy had begun renovation of the building and was marketing the property as a residential condominium.

Korman has renamed the Hotel AKA Sutton as an extended-stay hotel. In December 2005, Korman purchased the 122,889-square-foot former Wyndham Hotel on West 58th Street between Fifth and Sixth avenues for $90 million. They are renovating the hotel and expect it to open next year as the second AKA hotel.

In September 2004, they paid $43.8 million to Intell Development, which recently changed its named to Extell Development, for the 83,000-square-foot,96-unit apartment building at 234 East 46th St. Intell purchased the property from the Durst Organization, which built the property in 1985.

“The fact that we sold the Sutton to Korman was a result of the fact that as more and more hotels have been taken out of circulation for conversion to residential use, there became a greater demand for product for hotel operators as the hotel market in New York dramatically improved,” the president of Alchemy Properties, Kenneth Horn, said.

Mr. Brophy said,”Extended stay hotels certainly seem to be in vogue.”

As New York continues to host an ever increasing business traveler who wants something more than just a hotel room and somewhere to leave his belongings, this market continues to grow. This product type also offers a good alternative to the developer if the hotel market happens to soften, as the floor plans will typically allow for a residential conversion, assuming, of course, that that market is there at that time.

“The slowdown in condo sales is affecting the supply of extended stay hotels because their ‘use group’ is the same as residential condominiums and their layouts are compatible with condominiums,” a principal at Thompson Hotels, Michael Pomeranc, said. “Slow condo sales will increase the extended stay product because condos will convert to extended stay hotels.”

Over the past few years a number of hotels have been sold for conversion to residential condominiums. They include the Delmonico, the Plaza, the Stanhope, the Helmsley Windsor, the Barbizon, the Inter-Continental, the Empire, and the Mark.

“The boom in the condo market from 2003 to 2006 resulted in many hotel rooms being taken off the market for conversion to condominiums,” the chairman of the national real estate practice at Greenberg Traurig, Robert Ivanhoe, said. “The resulting diminution in available hotel rooms combined with a strong recovery in the hotel market after the effects of 9/11 have resulted in a scarcity of available hotel rooms necessary to meet the increased demand.

The recent ebbing of the condominium boom has even resulted in a recent change of plans to maintain hotels that were slated to be converted to condominiums to stay as hotels. These developments reflect a quick response to the rather drastic changes in both the condominium market and the hotel market, as the increased demand in the hotel sector is strong and appears to be sustainable, as long as the economy remains strong and we avoid and external events that might affect the hospitality industry.

“I think that this cycle to convert a hotel to a residential condominium is probably behind us for the moment, with the exception of the very high end locations,” Mr. Brophy said. “Given the softening in the condo market and the strong demand for hotel product, it would appear that hotels may now be the highest and best use. Nevertheless, we would be of the view that this market for conversion of a hotel to a condominium is still reasonably strong with the buyers focus being on address, locations, and amenities.”

“It is clear that the market focus has shifted away from conversion of hotels to condos and toward keeping them as hotels in one form or another,” the regional manager and vice president at Fremont Investment & Loan, Patrick Crandall, said. “Fremont financed Yitzchak Tessler’s conversion of the Windsor Hotel to luxury condominiums. While it’s true the project has not yet sold out, it has been a tremendous success for everyone involved, and there are only a few units left to sell.”

More than 10,000 hotel rooms are expected to come to market over the next 36 months. Last month, the mayor and the governor announced the issuance of a request for proposal for a hotel to be located on 11th Avenue between 35th and 36th streets across from the Javits Center. The hotel would have a minimum of 1,000 rooms and 50,000 square foot of convention space.

The New York hotel market continues to rebound aggressively and the outlook is bright for the industry.

Mr. Stoler is a television broadcaster and senior principal at a real estate investment fund.