Hospitality industry under strain, hotels to offer rooms on the cheap

By Michael Stoler | December 09, 2008 03:46PM

New York City hotel guests may be in for a break as the weak economy provides a crack in the hospitality industry.

Last week at my class at the NYU Real Estate Institute, a group of hotel owners, appraisers, and consultants noted that after a number of record years, hotel occupancy levels and average daily room rates are falling and are no longer out-performing the prior year’s record results.

Fewer travelers — business, domestic and European — are visiting the Big Apple. The decreasing strength of the dollar versus the euro, coupled with the global credit crisis and a significant reduction in business travel, is resulting in this fall’s overall drop in the number of travelers by at least 15 percent. Hotels are experiencing significant drops in occupancy since the beginning of November.

So for the first time in years, more than 25 hotels in Manhattan have already announced that in January they will be offering rooms at prices below $100 per night.

Richard Born, a principal of BD Hotels, the owner and operator of more than 17 prominent hotels including the Mercer Hotel and the Bowery Hotel, is bearish and expects a 40 to 45 percent decline in revenues per room in 2009.

Existing hotels that are particularly vulnerable in this economy are three-star hotels such as Comfort Inn, Quality Inn and Days Inn. Budget hotels in the Park Slope section of Brooklyn, Long Island City, and Hoboken are at serious risk of waning occupancy. Planned hotels in the boroughs as well as other secondary markets in Manhattan, Long Island City, and Downtown Brooklyn are not likely to get built.

In addition to the decline in travelers, restaurants have been affected by the economy.

“While people continue to dine in our restaurants, a major falloff has been noted in the average bill as well as significant reduction in the sale of high price wines,” said Laurence Kretchmer, a principal at Bold Foods, owner and operator of restaurants in Manhattan, Las Vegas and Puerto Rico, including Mesa Grill.

Born and other lodging experts have expressed uncertainty about when the hospitality industry will improve.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.

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