Hudson Yards — the next frontier in hotel development

Much attention has been paid to the new office towers planned for the Hudson Yards redevelopment on Manhattan’s Far West Side.

But the area, which is still largely industrial, may also soon be dotted with new hotels, too.

In the blocks closest to the actual rail yards — namely, along 10th and 11th avenues in the West 30s — hotels are being planned or considered at more than a half-dozen sites, though the dealmaking is taking place under the radar, according to brokers, developers and city officials.

Hotels have been popping up in a 60-block area that was rezoned in 2005 for some time. Indeed, about 3,000 rooms have been added to the swath — which stretches from Eighth to 12th avenues and from West 30th to West 42nd streets. But they’ve mostly been relegated to the area’s edges, like near the Port Authority Bus Terminal, and they are generally marketed to Times Square tourists.

In contrast, the newest crop of hotels being considered would be clustered close to the rail yards, where there are currently very few places to get a room for the night. And, they would focus on a new market: the expected surge of workers, tourists and business travelers, according to analysts, who called the area Manhattan’s next hot hotel market.

“That whole corridor’s about to see a tremendous amount of growth,” said Jeffrey Davis, managing director of the hotel group at commercial firm Jones Lang LaSalle.

From left: Justin Elghanayan of Rockrose Development, which is considering a hotel at one of its West Side sites, Ryan Nelson of Sherwood Equities, which is planning a 700,000-square-foot hotel at 360 10th Avenue, and architect David Childs

One big factor driving the trend for new hotels is that the zoning is largely commercial, meaning developers can’t put up as many apartment buildings as they can in other parts of the city. Indeed, many lots restrict the amount of housing that can be built to around 30 percent of construction, with the rest reserved for commercial development.

Thus, if developers want to make money off their land, they may be compelled to build hotels, brokers say.

Hank Sopher, a parking garage owner, has been marketing a parcel (now home to a parking lot) at the southeast corner of West 38th Street and 11th Avenue as a possible hotel site, brokers said. A message left with Quik Park, one of Sopher’s companies, was not returned.

Also, Edward Imperatore, whose family owns NY Waterway, has hired CBRE Group broker Darcy Stacom to explore the sale of an L-shaped lot on West 36th Street, just off 11th Avenue, according to Crain’s. A spokesperson for Imperatore did not return a request for comment. But sources said the site was being marketed as a hotel.

Hotel-condo hybrids are also an option. According to a broker close to the deal, that’s what the Chetrit Group is planning for a T-shaped, block-through site on West 37th Street that it purchased this summer for $26.5 million.

The parcel — which includes four adjacent lots at 541–545 West 37th and 540–544 West 38th streets — can support about 370,000 square feet of development, two-thirds of which could be a hotel, or up to 1,000 rooms, said Bob Knakal, chairman of Massey Knakal Realty Services. He represented the seller, Fortress Credit, in the deal.

Attempts to reach Chetrit were unsuccessful. But the company’s hotel division, King & Grove Hotels, has been actively acquiring hotels recently. In 2011, it spent $77.8 million on the Chelsea Hotel, which is currently in the midst of a major renovation.

Lure for hotels

Architect David Childs is designing a tower at Related’s Hudson Yards that will include a 200-room hotel. The two-pronged tower is pictured in the center of the rendering.

While much of the expected office construction in the area is not expected to be complete until after the newest stop on the No. 7 Subway line is extended into the area in 2014, hotels are a different story.

Sources say there is not as much concern about competition flooding the market.

“Hotels are better in the short-term,” Knakal said. While it will take time to plan and build these hotels, they are still likely to be built before other projects, he said.

Others point out that the decade-old Best Western Convention Center Hotel, adjacent to the Chetrit site at 522 West 38th Street and one of the only existing hotels in the immediate neighborhood, frequently sells out its 83 rooms. (A queen-size room there costs about $350 a weekend night.)

A condo-hotel will also rise at the largest development site: the 26-acre parcel over the rail yards itself, where the Related Companies and Oxford Properties are slated to construct more than a dozen towers, or almost 13 million square feet.

To be located at West 33rd Street and 11th Avenue, the tower is being designed by One World Trade Center architect David Childs and is scheduled to be completed by 2017. It will include a 200-room hotel along with office and retail, according to a source at Related.

One major lure for hotel developers is the Hudson Park and Boulevard, a four-acre mix of streets and parks planned for a strip that runs from West 33rd to West 42nd streets, between 10th and 11th avenues, in a mid-block location.

Hotel developers, who often shy away from mid-block sites because they don’t offer high enough visibility, will like the additional new corner lots created by the boulevard, brokers and landlords say.

The boulevard’s first section, between West 33rd and West 36th streets, is scheduled to be done by 2013.

For a while, a proposal by Governor Andrew Cuomo to raze the Jacob K. Javits Convention Center at West 34th Street threatened to put hotel plans on hold. (The hotel’s conventions draw visitors looking for rooms.)

However, the idea was shelved last summer when a plan to build an alternative convention hall in Queens unraveled.

“It matters a lot that it’s staying,” said Justin Elghanayan, the president of Rockrose Development, which owns several properties in the area.

One of the sites Rockrose owns is an entire-block parcel along West 39th Street off 10th Avenue by the new boulevard, a site that can accommodate 420,000 square feet of residential development and 1 million square feet of commercial development under the current zoning.

That latter commercial piece has been marketed for a 1,200-room hotel, Elghanayan said, though that kind of project, which would be a first for Rockrose, would require a partner.

However, Elghanayan and other developers expressed concern that because many parcels in the area are large, hotels aren’t an ideal use. That’s because they would have more rooms than current demand can support.

Plus, hotels are “not beneficial for us from a tax perspective,” said Jared Della Valle, president of Alloy Development, which owns a 500,000-square-foot parcel along the boulevard.

Indeed, the payment in lieu of taxes program (PILOT), which gives Hudson Yards developers a reduced property tax bill for 30 years, is not available to builders of hotels, he said.

Still, Alloy, which mostly develops boutique condos, has not ruled out the idea; it’s currently teamed with Mort Zuckerman’s Boston Properties, which has built hotels, to explore all options for the site, Della Valle said.

Scuttled projects revived?

Whether the new interest in hotels will revive scuttled plans for old hotel projects remains to be seen. The state, which owns the land facing the Javits Center, has been pushing for a hotel there since the convention facility was built in 1986. But no hotel has ever been built.

In 2008, after many delays, three developers — Extell Development, the Moinian Group and FaulknerUSA — submitted bids to build on the site. But state officials ended up returning their money as concerns mounted over the fate of the Javits, which was also in need of a massive renovation.

But that $463 million renovation is nearing its 2013 completion. And the site, which is where workers are installing a vent for the No. 7 train, will be empty again once the new subway station opens in 2014. “There’s always the possibility in the future to do a hotel there,” said Barbara Lampen, president of the New  York Convention Center Development Corp., which owns the land.

Lampen added that there’s a state-owned (and similarly empty) parcel that might be desirable for a hotel south of Javits, too. The site of a truck parking lot, it’s a skinny lot located between West 34th and West 35th streets from 11th to 12th avenues.

Those types of smaller lots can be advantageous, said Ryan Nelson, a vice president at Sherwood Equities, the developer that’s planning a 700,000-square-foot hotel for a corner lot at 360 10th Avenue at West 30th Street.

The 50-story hotel, which is still in the design stages and has not yet been permitted, could have up to 500 rooms and also may contain offices, said Nelson. The building “should” be completed in 2016, he said.

Sherwood, which developed the Renaissance New York Times Square Marriott, bought the site in 2011 from Barclays Bank, which took control from previous owner Extell.

In the end, hotels will go where tourists go, which is in part why Sherwood is taking its plunge. Its site is served by a spur of the High Line, the popular railroad-turned-park that loops through the area. In fact, the hotel could be the first since the Standard Hotel in the Meatpacking District opened in 2009 to offer direct access to the High Line.

And “from a tourism perspective, we are just two blocks from Penn Station,” Nelson said. “It just makes sense that [this area] is where the growth will take place.”