New York City’s hospitality industry “is on fire,” the global chairman of brokerage services at CB Richard Ellis, Stephen Siegel, said. “People from around the world want to visit New York,” he said, and, of course, they all need places to stay.

More than 8,000 rooms are in various stages of planning throughout the city. Supply cannot meet the demand, which has been created by the more than 41 million visitors to the city in 2006. According to industry leaders, 44 million visitors — a record number — are expected this year, helping to fuel the hospitality fire.

Owners and operators in the hospitality sector are saying they have not experienced such impressive cash flow, hotel property selling prices, and availability of financing for close to a decade. “One of my clients who operates a four-star hotel says cash flow from operations increased from $12 million to $45 million in less than two years,” the chairman of the national real estate practice at Greenberg Traurig, Robert Ivanhoe, said.

Even after several years of positive growth, real estate experts say the market is improving so far in 2007. “Occupancy levels have been close to capacity for the second year in a row, and room rates had another year of double-digit growth,” the president of Lodging Advisors, Sean Hennessey, said. “In light of this, more and more people assume the pace of improvement must moderate. And yet, for the first quarter of 2007, occupancy is up about 1 percentage point over last year, and room rates are up 12%. The reality is that the hotel market is getting stronger, not weaker.”

A senior managing director who specializes in the hospitality industry for CB Richard Ellis, Daniel Lesser, agreed. “The Manhattan hotel market is white hot, with demand for hotel rooms far outstripping supply,” he said. “During the past several years, several thousand hotel rooms have been lost from the city’s inventory due to the conversion of existing hotels to residential use. As good as hotel economics have been in New York with high levels of occupancy, and strong increases in average rates, residential economics have until recently been even better. As the New York lodging market continues to experience increases in average rates, and as the robust residential market slows down a bit, we are now seeing in several cases that hotel economics begin to ‘pencil out’ the feasibility of new hotel development.”

Rising rates have netted big profits for some developers. “Hotel business is booming and transaction prices are reaching new highs with every sale,” a principal at BD Hotels, Richard Born, said. “We have been inundated with offers ranging from $500,000 per room for three-star products to over $1 million for higher-end hotels. We have been tempted and have fantasized about selling everything and sailing into the sunset, but for now we plan to hold onto our assets.”

A number of years ago, a joint venture of our company and investors paid about $7 million for the 170-room Metro Hotel at 45 West 35th Street, or approximately $41,176 per room,” Mr. Bonn continued. “We have been offered more than $500,000 per room, or $85 million.”

In the fall, a former partner and executive vice president at Tishman Hotel Corp. and Anglo Irish Bank, Timothy Haskin, formed Peninsula Real Estate Fund I LP and Peninsula Real Estate LLC. The entity acquired the Beekman Tower Hotel and Eastgate Tower Hotel for about $420,000 a room. “Market performance is exceeding our underwriting, and we are planning significant upgrades to both assets that will commence in the very near future,” Mr. Haskin said.

“The hospitality market in New York continues to be extremely strong with demand from all segments outpacing supply. We are looking to acquire additional assets at this time,” he added.

“Developers are looking for opportunities to build lodging facilities throughout the entire metropolitan region,” the chairman of Metropolitan Valuation, Marty Levine, said. “Most of the hotels now under construction are either limited service, such as those being built under Fairfield Inn, Comfort Inn, Holiday Inn Express, or are smaller boutique hotels with branding such as the Standard, aLoft, etc. It is interesting that there are virtually no new luxury hotels planned, except for the reopening of a much smaller Plaza.”

“We are in the process of building more than 25 hotels, with a total cost of $1.2 billion and plans to spend an additional $1.1 billion for hotel projects in the pipeline,” the chairman of McSam Hotels, Sam Chang, said. McSam hotels under construction range between 110 rooms and 400 rooms, and they are in every borough except the Bronx. The majority of the projects are limited service, including at least half a dozen boutiques located in Union Square, Midtown, and Lower Manhattan.

“For hotels, I would view the Midtown luxury market as the strongest in the region, perhaps in the country,” a managing director with Cushman & Wakefield, Eric Lewis, said. “Supply and demand for that submarket continues to strongly favor owners, resulting in revenue per room gains so far this year of nearly 20%. The Midtown south select service market is witnessing a large share of new supply entering the market; however, given the overall strong fundamentals, I don’t see that as a problem at this point.”

STRONG FINANCING

An influx of capital into the New York real estate market is driving the hotel market. “The availability of funds both on the debt and equity side from the plethora of lending institutions and opportunity funds for hotel projects in the Big Apple is plentiful,” the principal of Eastern Consolidated, Alan Miller, said. “Numerous groups are seeking to be part of the tremendous wave of hospitality demand we are experiencing from the construction of ground-up hotels or the conversion of existing buildings to the repositioning of certain hotel assets.”

Mr. Lewis added: “The market is awash in capital chasing hotels. The industry has accepted hospitality as a major food group and that combined with every good supply, demand fundamentals has made financing properties much, much easier.”

Mr. Miller continued: “All capital sources are extremely aggressive today when it comes to putting together some sort of financing package to help carry out a hotel development.”

“The hospitality finance market continues to be strong, however borrowers should seek professional advice to get the best possible transaction,” a partner at Sonnenblick-Goldman, Mark Gordon, said. “Each transaction redefines the financing market and you need to be actively in the market on a daily basis to structure the best possible transaction.”

WIDESPREAD DEVELOPMENT

More than 50 hotel developments are in planning stages all over the city. At least three new W hotels are planned, for Lower Manhattan, downtown Brooklyn, and possibly in Harlem.

“With the strong need for more rooms in Manhattan, coupled with the fact that there are no longer any ‘undesirable’ neighborhoods, the entire island south of 125th Street from river to river represents a good hotel site,” Mr. Lesser said.

“With regard to Harlem, one or two hotels should be built and likely will over the next three to five years,” Mr. Gordon said.

A number of hotels are opening on the Lower East Side and the Bowery. Last month, the 17-story, 135-room Bowery Hotel opened at 335 Bowery at East 3rd Street. A few months ago, the same development team opened the Lafayette House Hotel, a 14-room hotel at 38 E. 4th St. between Bowery and Lafayette Street in a former five-story townhouse. At 250 Bowery, PMA Associates and Flank Architects are building a 63-room, eightstory condo hotel at Prince Street. The Peckmoss Group is developing the Cooper Square Hotel, a 23-story building on the corner of the Bowery at 5th Street.

Highgate Holdings is planning to convert the Chinatown Holiday Inn at 138 Lafayette St. into a boutique hotel. Less than a block away, Cape Advisors will be transforming 150 Lafayette St. into a Mondrian Hotel. A local developer is planning to add 15 floors to a 12-story building at Howard and Grand streets in SoHo. A joint venture of the Bayrock Group, Zar Realty, and the Trump Organization is building the Trump Soho, a 42-story development on Varick Street.

In Midtown, a number of hotels are planned. They include a Courtyard by Marriott at the corner West 54th Street and Broadway by developer Harry Gross. Extell Development is planning a 55-story condo hotel mid-block on West 45th Street near Broadway. A joint venture of Horizon Global and a real estate investment fund is planning to build a boutique hotel on West 48th Street at 11th Avenue.

In January, BD Hotels converted the 346-room Pickwick Arms hotel into the POD hotel. The hotel is targeted at individuals who want to stay in a room for less than $200 a night in Midtown Manhattan.

CAUTION ADVISED

Nevertheless, industry leaders say they are only cautiously optimistic.

“The pipeline of hotels is probably at an all-time high, which might lead to increased competitiveness and price wars,” Mr. Hennessey said. “It will likely hurt those hotels that have benefited from the compression of Manhattan’s demand. The greater risk that the city’s economy falters and that many of the newly minted hoteliers don’t realize is that a small drop in revenue can cause a huge drop in profitability.”

Mr. Lewis added: “At this point in the market, demand is so strong that any hotel put up is filled almost immediately. A market this strong can hide almost any mistake; be it location, design, financing, service, or quality. When the slowdown eventually comes, a reverse ripple effect is expected whereby the properties living off of the Manhattan displaced demand, particularly those without adjacent commercial development, will feel the downturn first. Similarly, boutique properties which are well-located but don’t hit the mark on service, style, or design will slow the effect before the better properties.”

As long as the economy continues to surge and visitors rush to New York City, the future is bright for the hospitality industry. Yet one must remember that, as the president of Essex Capital Partners, Mitch Rutter, said, “Hotels are operating businesses, and each day the owner wakes up having to fill the rooms.”

Mr. Stoler, a contributing editor to The New York Sun, is a television broadcaster and senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com.