Daily Dirt: Yellowstone hotel proposal raises questions on permitting, migrant crisis

New hotel projects have been all but unheard of since a 2021 text amendment requiring a special permit to build or expand hotels in the city. But Yellowstone Real Estate Investments was undeterred. 

The firm proposed converting part of a long-vacant Times Square office building at 220 West 42nd Street into a hotel. 

The proposal comes at a critical juncture for the city’s hotel industry, and it highlights a pair of issues affecting the industry: first, the special permitting process; second, the hospitality industry’s role in the city’s migrant crisis.

The city’s hotels showed understandably mixed results in 2023. Occupancy and nightly rates both increased from the previous year, as tourism to the city continues to grow following the pandemic-driven ghost town of 2020. 

But, both measures are below pre-pandemic levels, according to Vijay Dandapani, president of the Hotel Association of New York City. Occupancy rates are five points lower than 2019. Meanwhile, nightly rates, when adjusted for inflation, are still about $20 a night below their pre-pandemic number at $245 of revenue per available room.

The time will come soon when the industry will begin to feel the impact of the special permit requirement. As of the end of the last year, there were about 12,000 new hotel rooms in the development pipeline. But all of these rooms were proposed before the 2021 law. The Yellowstone proposal is one of few hotel proposals since then.

As tourism to the city continues to grow to pre-pandemic levels, New York’s supply of hotel rooms will eventually tighten. Existing hotels will benefit from that, as they gain pricing power. Investors have taken note. As this newsletter discussed in February, hotels were a relative bright spot in the city’s commercial sales market last year. 

But the city and its tourists will suffer from it, as the lack of supply places a cap on travel and tourism. 

The special permit is not the only issue impacting the hospitality industry. There’s also the case of the migrant crisis. The hotel industry has already played a huge role by providing over 16,000 rooms, or 12 percent of the city’s hotel rooms, to house migrants. Those hotels are not included in occupancy data, meaning that difference between 2023 and 2019 is likely starker than it appears. 

The migrant crisis could impact Yellowstone’s plans for its Times Square property, too. It is currently housing almost 1,100 asylum seekers. The project would likely require rehousing all of them.

The city signed a $1.37 billion deal with HANYC that extends through 2026. It’s unclear how the contract impacts Yellowstone’s property, given that it’s not currently a hotel. 

As Yellowstone presses ahead, it could serve as a litmus test for navigating the special permitting process. Though the city has yet to issue a special permit for a hotel, law firm Ackerman predicted the application process would take between 24 to 30 months. 

What We’re Thinking About

New York Community Bank announced the departure of CEO Thomas Cangemi yesterday, disclosed “internal controls” issues around its loan book, and slashed $2.4 billion from its earnings. Just how bad will things go for NYCB? Send a note to david.westenhaver@therealdeal.com.

Closing Time

Residential: The priciest residential sale on Friday was $14.15 million for a condominium unit at 500 West 18th Street in Chelsea. 

Commercial: The most expensive commercial closing of the day was  $11.25 million for a 22,700-square-foot apartment building at 310 West 80th Street on the Upper West Side. 

New to the Market 

The priciest residential property to hit the market on Friday was $38.5 million for a condominium unit at 157 West 57th Street in Manhattan. Jorge Lopez of Compass has the listing. 

— Matt Elo