The Hotel Marketplace
Getting Hot This Summer

by Robert D. Greenberg, AICP

As the hospitality market gears up for its busiest season, the New York market has already turned up the heat over this summer.  Occupancy rates are up, average daily rates (ADR) are rising, and a large number of transactions are being made.  “The hotel business in New York has rebounded nicely in the last year,” according to Sumner Baye, Principal, International Hotel Network, and his panel of hospitality experts at the recent New York Real Estate Expo Mega Forum.

Over 48.7 million tourists and business travelers have filled the hotels in New York to an 88% occupancy level with ADRs of over $200-250 dollars per room. Five-star properties were asking $400-600 for their rooms and over a $1,000 a night for their suites.  “The renowned and refurbished Plaza Hotel,” says Baye, “has been sold out for several weeks and has been quoting for some suites, in the $1,500 per night category. Their competition, the Four Seasons, The Mandarin Oriental, and The Ritz Carlton are all doing extremely well, considering that the City has got more than 65,000 hotel rooms.”

The World Trade Center Will Be a Magnet
It is anticipated as the World Trade Center Memorial opens it will become a must see for tourists and will help to boost the number of visitors to the City to more than 54 million by the Fall of 2012.  The Memorial is expected to boost new hotel construction to meet the growing demand.  As both tourists and regional day trippers visit the new site there will be a wave of new restaurants and retailers to serve the appetites of the millions of new visitors to Downtown.

After three years on the back burner, new permits have been issued to Time Equities Inc. for their planned $600 million, 65-story, five star hotel and condominium project at <b>50 West Street<b>.  The 139-key hotel, designed by Helmut Jahn and architect-of-record Gruzen Samton/IBI Group, is planned to achieve LEED Gold certification.

Long Term Stay Market
“The New York City hotel and travel market is hot, hot, hot,” states Dieter Seelig, General Manager, Sutton Court Residences.  “The four month forecast for our long term stay property at 417 East 57th Street has both ADR and occupancy above 2010 levels.  In fact, occupancy is expected to be over 90% with ADRs expected to be between 2% and 10% higher than 2010.  We are experiencing more requests than we were originally expecting.   Luckily the market has been with us and provided ever increasing demand by visitors from all over the world.”  The most active units requested and unfulfilled are larger, two and three bedroom furnished apartments for rental for less than a year. “Anybody who has sold their apartment and needs temporary lodgings has difficulty finding a place at the moment.  As the apartment market seems active again, which creates further demand, the buyers are also looking for a place during the period of renovation.” 

New Developments on the Rise
The new hotel properties on the market and under development represent a wide range of sizes and quality levels.  Eastern Consolidated was recently retained as the exclusive agent in the sale of 5 Allen Street, a 12-story hotel development, now nearing completion, amid the Chinatown and Lower East Side districts. Anticipated to be completed as a limited service hotel by late 2011, the property offers the flexibility of alternative uses and marketing strategies either prior to completion or once the building is finished as currently planned.  The asking price ranges from $16-18 million depending on whether or not the FF&E (furniture, fixtures and equipment) portion is included. 

The Albanese Organization, in joint venture partnership with Washington, DC-based developers Buccini/Poli, has acquired a site at 312-318 West 37th Street for a new 300-key hotel.   According to Eastern Consolidated Principal and Senior Director David Schechtman, the deal is significant because “it indicates that non-New York-based developers still have a healthy appetite for prime Manhattan development sites and it points to the fact that land prices have returned to 2007 highs.  Because this site fetched such a high price, other long-time owners might well be encouraged to follow suit.”

DiamondRock Hospitality Company announced a new 285-key hotel on a vacant lot at 136 West 42nd Street. Plans may allow for expansion up to 400 keys.  The hotel is projected to open in 2013.  Hersha Hospitality has agreed to purchase the 175-key Hyatt Union Square now under construction at Union Square for $104 million, fetching a price of almost $600,000 per key.  The Hyatt is planned to open in 2012.

Existing Hotels Trading Aggressively
It seems like every savvy investor is looking for a four star hotel in a great location that has recently been renovated for a price tag under $500,000 per key, while five star properties are trading for considerably more.  Many transactions have been reported recently with many more soon to be announced.
RFR Holding Co.’s Aby Rosen has added the 597-key Paramount Hotel at 46th and Broadway to his portfolio collection for more than $270 million in a purchase from Highgate Holdings and 46th Street and Broadway. 

FelCor Lodging Trust Inc., an Irving, Texas-based hotelier, is buying the <b>Royalton<b> and <b>Morgans<b> hotels from Morgans Hotel Group Co. for $140 million, as the lodging REIT enters the booming New York market.  The net price is just under $500,000 per key.  

Denihan Hospitality Group, utilizing proceeds from an equity partnership with Pebblebrook Hotel Trust, recently purchased six Manhattan hotels for an average price of more than $520,000 per key.  The properties include The Benjamin at Lexington and 50th Street, and four Affinia hotels (Affinia Dumont in Murray Hill, Affinia Gardens, Affinia 50, and Affinia Manhattan).Hong Kong billionaire Cheng Yu-tung bought five luxury hotels, including Manhattan’s 188-key Carlyle, from Maritz, Wolff & Co. and Rosewood Corp.

Looking Ahead
Chinese investors are among those looking to invest in high-end hotels in major U.S. cities in anticipation of the rise of tourists from the Pacific Rim.  Four and five star properties are of the greatest interest as that sector has enjoyed the largest recovery since the financial markets crashed in 2008.  In fact, Jones Lang LaSalle Hotels predicts that existing hotel sales nationally may rise by as much as 25% by the end of 2011, as ADRs at the most expensive hotels jumped 13% in the first quarter of the year. 

“Looking to the future, hoteliers at all quality levels are all hoping to continue this success,” says Baye.  “Because of this trend, there is new hotel construction happening around the City, such as the new Hyatt Park Lane Hotel, across from Carnegie Hall.  It is anticipated that this will be open in Spring 2012 at a cost of $1 million per key with condominiums being quoted at $4,000 per square foot.  This is yet another sign of the strength of the New York City market.  The hospitality sector, from the luxury brands to boutique hotels and hotel chains are very bullish on New York.”