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Hoteliers struggle in LIC

Rates at a Holiday Inn Express in Long Island City are $152 to $189 per night.

While it has been hailed as the next hot spot, when it comes to hotels, Long Island City appears to be struggling to live up to the hype, as new zoning restrictions and the credit crunch appear to be stymieing some projects.

Thirteen hotels are in the pipeline for the Dutch Kills section of Long Island City, which stretches from the Queensboro Bridge to 35th Avenue and from the East River to 37th Street. The list of projects includes buildings from established chains like Holiday Inn and Clarion Inn. But so far, only three hotels have started construction.

At least three proposed hotels have been rejected by the Department of Buildings.

During a recent meeting at The Real Deal, budget hotel czar Sam Chang, who already has a hotel there, called the area the "worst" for new hotel development in the city (along with Williamsburg), saying "you are dependent on overflow business from Manhattan."

One developer whose plans were rejected by the city, Kaushik Patel of Sterling Hospitality, refused to discuss the specifics of his unnamed project, saying there were no problems with it. The building proposal "is a process," he said. "It takes time."

Hoteliers whose plans are rejected are invited to resubmit plans with changes — which Patel plans to do. His hotel, which is planned for 3830 Crescent Street, has not declared a franchise affiliation.

Some developers take the opposite view as Chang and see the gritty neighborhood as having great potential right now, since it is surrounded by seven major subway lines and is one stop to Midtown Manhattan.

Most of the hotels recently proposed for the area, which also include a Courtyard by Marriott, are less expensive than their Manhattan counterparts. At a Holiday Inn Express in Long Island City, for example, rates for two adults range from $152 to $189 per night. At the same hotel in Midtown near Madison Square Garden, rates range from $280 to $342 per night. Manhattan's average rate is currently $268 a night.

Just outside of the Dutch Kills area, an Aloft Hotel — which, like the W brand, is owned by Starwood Hotels and Resorts — is planned for 29-43 41st Avenue. Aloft often builds in emerging markets that could not sustain the W Hotel model, an Aloft spokesperson told The Real Deal.

Mark Gordon, principal and head of Sonnenblick Goldman's U.S. hotel group, said that there is definitely a need for hotels in New York, but "in the current environment, some of what's been proposed probably won't get built," he said.

Bjorn Hanson, former head of the hospitality practice at PricewaterhouseCoopers and current New York University hospitality professor, agreed.

For one thing, hotel developers often announce their intentions before they have the financing or the franchise agreements to go forward with a project. Hanson said that the 13 planned hotels were likely in various stages of planning and securing financing.

But developers are also being tripped up by tighter lending restrictions today.

"Financing in today's market is an issue for any type of development," said Gayle Baron, director of the Long Island City Business Development Corporation.

Adding to the pressure: New zoning restrictions approved by the local Community Board could be put into place, barring hotels from most of the Dutch Kills area and restricting hotel development to an area along Northern Boulevard.

The rezoning, which is up for review by the City Planning Commission, could move forward by September 23. The City Council would then have 50 days to consider the proposal.

However, developers with a completed foundation would be exempt from any changes; as a result, many hoteliers are racing the clock to finish their foundations.

Still, the zoning changes for Dutch Kills can't happen fast enough for some.

City Councilman Eric Gioia spoke out against overdevelopment in Dutch Kills in June, calling on the Department of Buildings to halt all hotel development until the new zoning laws are put in place.

Gioia said the zoning laws are still not strict enough to protect the low-rise residential Dutch Kills neighborhood from taller hotel developments.

"We don't want a nine-story or 10-story building next to our two-family houses," said Jerry Walsh, president of the Dutch Kills Civic Association. "They're not good neighbors."