The Real Deal New York

The flagging Manhattan hotel market may have turned a corner: Hersha

The supply pipeline has finally thinned, says company president Neil Shah
By Katherine Clarke | February 23, 2017 06:00PM

Waldorf Astoria Hotel

UPDATED, Feb. 25, 3.45 p.m.: The tide may be finally beginning to turn for Manhattan hotel investors, thanks to a dip in the supply pipeline.

Hersha Hospitality Trust, an owner of 12 New York City hotels, posted 1.2 percent growth in RevPAR — or the revenue pulled in from each available room — in the fourth quarter, driven by a 1.7 percent increase in daily room rates and 94 percent occupancy. The uptick is a welcome relief for the company, which had reported dips in both rates and occupancy levels over the past several years. 

Hersha President Neil Shah attributed the improvement to a decline in the number of new hotel deliveries and a clampdown by the city on “legislative initiatives to remove illegal listings on home-sharing sites.”

Shah said New York was a market of “hard-won victories” and that the months of November and December had been the strongest in nearly two years.

“In Manhattan, we are pleased to see improved performance and are optimistic that the market is turning the corner after several sluggish years,” he said, speaking during a fourth-quarter earnings call. “Supply growth is finally decelerating with very few if any new hotel construction deals able to obtain financing.”

“We’re not ready to say yet that we’re out of the woods, but we’ve been looking at the supply pipeline for a long time and this is the year that we see a meaningful deceleration in new supply,” Shah said.

Hersha pointed to the planned closure of the Waldorf Astoria March 1, saying it will likely have a positive impact on occupancy for surrounding hotels, including Hersha’s own Hilton Garden Inn Midtown East. Anbang Insurance Group TRData LogoTINY, the new owner of the hotel, is expected to temporarily close the 1,413-room property in order to renovate it and partially convert it to condos.

“The closure also has a significant impact on new supply trends for New York broadly,” Shah said. “In 2017, we expect only 2.9 percent new supply growth in Manhattan.”

Asked by analysts about a push by Mayor Bill de Blasio to develop new rules curtailing hotel construction in traditional manufacturing zones such as the Garment District, Shah said it would also have a significant impact on deliveries. The new rules proposed by the mayor would require special permits to build hotels in certain industrial areas of the city.

“I think if it were to be signed and passed, it would absolutely lead to an even more significant decrease in the supply outlook for New York,” he said. “The hesitancy of construction lenders … has reduced the pipeline very significantly, but I do believe that some kind of regulatory help would be appreciated at least by our portfolio and by us.”

Hersha’s hotel properties include the Hyatt Union Square and the Duane Street Hotel in Tribeca.

Correction: In a previous story, The Real Deal incorrectly attributed a quote about hotel supply growth to Hersha CEO Jay Shah. It was said by his brother, company president Neil Shah.