The Real Deal New York

Shrinking Hotel supply fuels development plans

October 18, 2007
By Alison Gregor

As developers cash in on lucrative hotel-to-condo conversions, the number of hotel rooms in New York is shrinking, even as hotel occupancy in the city is likely to peak in 2005 after several slow years.

In order to make up for the shortfall, developers are looking to the rezoned Hudson Yards area as a location for new hotel construction, simply due to a lack of alternative development sites.

The slow leak of hotel rooms from Manhattan doesn’t yet have hotel industry experts running around like Chicken Little, but they warn that there could be high-season shortages.

At the end of 2004, there were 62,000 hotel rooms in Manhattan, and about 70,000 in all of New York City. But in 2004, about 1,305 rooms were lost due to five hotel closures, while only 452 rooms were added due to the addition of four hotels, says John A. Fox, senior vice president at PKF Consulting, which specializes in hotels.

“While the loss of hotel rooms is not insignificant, it’s not at the level where we’ve got a dire shortage,” Fox says.

Fox’s statistics don’t include condo conversions, which would up the number considerably. Legendary hotels like the Pierre and Carlyle have been selling apartments for years, while The Plaza, Stanhope, St. Regis and Sheraton Russell hotels have become the latest adherents to the trend.

The old Windsor, Empire and Gramercy Park hotels are reportedly converting rooms to condominiums. The Inter-Continental Central Park South, Regent Wall Street, Barbizon and Olcott all are transforming multitudes of hotel rooms into apartments.

The Mayflower was torn down completely to make way for highrise luxury apartments. And there have been reports of a plethora of other hotel conversions, though at least one report was erroneous.

The Plaza Athenee has no plans to convert any of its hotel rooms, Fox says.

Yet Manhattan may not be completely devoid of new hotel sites. Some are promoting the Hudson Yards area on the island’s far West Side.

Hotel industry experts say there’s no question hotels will go up in the Hudson Yards area, but the unknown is when.

“That area is under-hoteled, in general,” says Art Adler, managing director at commercial brokerage Jones Lang LaSalle. “The question is when should hotels be developed over there. Should it be now? Or should it be when there’s more commercial development over there?”

“Usually, hotels follow, not lead, commercial and tourism development,” he says.

In the Hudson Yards area, a new hotel with about 1,500 rooms has been zoned as part of the expansion of the Javits Convention Center. If developed, it would be a destination in itself, much like the Marriott Marquis in Times Square, Adler says.

But Fox says the Javits hotel was not a done deal and no developer had been selected.

“I don’t think you’re going to get somebody to come in and do that without some kind of incentives,” he says.

Also in the Hudson Yards area, there is potential for construction of a hotel as part of the new Penn Station redevelopment, Adler says.

Currently under construction in Hudson Yards is a 188-room Holiday Inn Express at 29th Street between Seventh and Eighth avenues, which is scheduled to open in the third quarter of 2006, says Monica Smith, corporate communications coordinator for InterContinental Hotels Group.

Rumored to be in the works are a Holiday Inn at 39th Street and Eighth Avenue and a Wingate Inn on 35th Street between Seventh and Eighth avenues.

Most industry experts feel that the Hudson Yards area might be appropriate for smaller discount hotels.

“If you’re coming to New York, you want to stay on Eleventh Avenue?” asked Eric Anton, senior managing director at Eastern Consolidated Properties, a commercial investment banking firm. “Not really. Unless maybe you’re driving in, and it’s convenient. I could see a lot of smaller projects, like Motel 6′s or Howard Johnson-type hotels” in Hudson Yards.

Adler agreed, predicting the development of a couple hotels to serve spillover from Times Square during high season, which is the fall, holidays and spring.

“A Holiday Inn, for example, that’s priced well would do very well, because certain elements of demand aren’t as price sensitive,” he says. “You’re not going to see luxury hotel development there.

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