Across New York City, hotels have been popping up like post-recession beacons of an improving economy. But the area around 29th Street in Manhattan has seen an especially noticeable transformation.
Just a few years ago, the street was mostly limited to retailers selling an inexpensive hodgepodge of goods and discount clothes. Now there are nearly a dozen hotels clustered on and around 29th Street, including the trendy Ace Hotel, which opened in 2009. It was followed in 2011 by a sister property, the NoMad Hotel. On 29th Street and Park Avenue, the 249-room Gansevoort Park Avenue opened in 2010. The Eventi hotel, at the corner of 29th and Sixth Avenue, launched the same year. And developer John Lam has plans for two more hotels on Broadway between 29th and 30th streets.
Twenty-ninth Street, especially the area between Sixth Avenue and Broadway, “is all high-end boutique hotels,” said Joe Long, chief investment officer for Kimpton Hotels, which manages the Eventi. “They all helped each other and legitimized the neighborhood as a credible hotel destination.”
The area also now has a smattering of lower-priced chain offerings, from a Hilton Garden Inn to a Holiday Inn. And more hotels are on their way.
In the last 14 months, “we’ve probably received a dozen to two dozen requests” for hotel construction financing in Midtown South, said Ayush Kapahi, a partner at HKS Capital Partners.
Ace in the hole
Twenty-Ninth Street has gotten a lot of buzz in the last few years for its trendy transformation. But in many ways, the still-gritty neighborhood is an unlikely place for a hotel hot spot.
As surrounding neighborhoods gentrified in recent decades, the Garment District didn’t see much change, in part because much of the area was zoned for commercial and manufacturing rather than residential, brokers said.
“Because of those limitations on zoning, you didn’t necessarily have the run-up in price that you would have had with residential,” said John Fox, a senior vice president at PKF Consulting USA, which specializes in hospitality. “The area overall had much more of a loft and manufacturing feel to it.”
But especially after the economic crisis depressed prices, the area offered a number of affordable parcels ripe for hotel development, industry insiders said. Plus, there were properties available for developers to snap up. “There were a number of assets in the area and a number of vacant lots and garages that had the ability to be developed at a price basis that allowed the developers to go in and have the economics make sense,” Kapahi said.
For example, Lam closed in November on a $16 million deal to purchase 1227 Broadway, a site with over 50,000 buildable square feet. Lam, who bought 1205 Broadway and 1225 Broadway in 2011 for $72 million, now owns the entire block, where he’s planning to build two hotels with a total of 650 to 700 rooms. The first three floors will be devoted to retail, while the fourth floor will house the lobby, restaurants and an open deck, according to Joseph Yi, vice president at the Lam Group. The company is still in discussions with potential brands to partner with on the hotels, Yi said, but is planning to follow the boutique and lifestyle models of the Ace and the NoMad.
Yi said the firm was interested in the Broadway site because the price — less than $300 per buildable square foot — was about 10 percent lower than in nearby neighborhoods.
“The price point in this area was a little bit better than some of the more highly sought-after markets, like in the Times Square area and in the 40s and 50s,” Yi said. “For the amount of frontage we have on Broadway, I think we executed this well below market.”
Prices have increased somewhat since the Lam Group made its purchases, brokers said: Land in the area now goes for $300 to $400 per buildable square foot, depending on the specific location. Yi said the Lam Group has recently been offered as much as $450 a foot for the Broadway site, but it isn’t interested in selling.
In 2012, land on and around 29th Street sold for an average of $360 per buildable square foot, roughly double 2009’s prices, according to data from investment sales firm Eastern Consolidated.
Meanwhile, hotels on 29th Street can charge guests up to $700 to $800 a night, depending on the season, according to Kapahi. While New Yorkers may not view 29th Street as über-trendy, tourists tend to be less discerning between neighborhoods, industry insiders said, as long as they are centrally located, with easy transit access to city attractions.
“Tourists don’t necessarily know that it’s much different from Madison Square Garden or even Times Square,” said Fox. For them, “Manhattan is Manhattan.”
Plus, when it came to attracting the young and stylish clientele of the Ace Hotel, “it almost helped to have a gritty neighborhood,” said Steven Hurwitz, executive vice president of GFI Development Company, which developed the Ace and the NoMad. “That demographic wants to be in a cool spot and a place that feels undiscovered.”
The landmarked 1904 building that is now the Ace Hotel is owned by LGF Enterprises, part of Lillian Goldman Family Foundation (see related Sol Goldman story). In 2007, GFI paid $40 million for a long-term lease of the building, a price Hurwitz said “was appropriate for an undiscovered neighborhood.”
With laptops in hand, young tech types now flock to the Ace lobby, where it’s often difficult to find a spare seat (or plug) most afternoons. Stumptown Coffee Roasters and the Breslin Bar & Dining Room, which occupy retail space off the lobby, also helped establish the hotel as a destination.
Shifting economics
Now that these hip and stylish hotels have set up shop in the area, they’re driving further development.
The NoMad — which has a higher-end, older clientele than the Ace — has benefited from the Ace’s pioneering efforts, Hurwitz said.
“The NoMad was the right product to open on the heels of change,” said Hurwitz. “It would have been harder to open first.”
Meanwhile, the Eventi opened in the spring of 2010, with an aesthetic Kimpton’s Long calls “playful” and “masculine.” Developer DLJ Real Estate Capital Partners bought the site — formerly a vacant lot — in 2005 for over $132 million, according to city property records. Rates in the nearly 300-room hotel range from $350 to $600 a night, depending on the time of year.
But the economics that helped drive the 29th Street hotel boom are shifting. Now that the area is more established, deals are tougher to come by.
“It’s definitely become pricier; there’s no question,” Hurwitz said.
Yi said the Lam Group is looking for a new site in the area, but only if the price is right.
“I think the market has gone completely upside down in the area now,” said Yi. “A lot of the owners are asking numbers above what [they] should be in that location.”
GFI, too, would build another hotel in the area if it found the right property at the right price, Hurwitz said.
“We’re out looking,” he said, but “we haven’t found anything that makes sense for us.”