Last month marked the start of the two-month “slow season” in the New York City hospitality industry. But you wouldn’t know it in the lobby of the Hotel Belleclaire on West 77th Street.
Occupancy is at 90 percent. On a typical “slow” afternoon, bellhops pushed overflowing luggage carts through throngs of international tourists. Hebrew, German and Italian rang out from all corners — there was even a jetlagged poodle from Paris napping in front of the check-out counter.
New York’s tourism boom has reached Uptown, into the sleepiest areas of the New York hospitality industry. It appears to be reversing a once-ominous trend for hotels on the predominately residential Upper East and West sides of Manhattan.
The past three years have seen the closure of the Mayflower on 60th and Central Park West, the Olcott on 72nd and Central Park West and the Melrose on 63rd and Lexington Avenue as developers capitalized on the red-hot residential market and took their properties condo.
Many developers are now scrapping the long-planned conversions of several hotels, as others renovate and upgrade existing properties.
It makes sense in the current hospitality climate. While the residential market cooled, more than 44 million tourists converged on New York City in 2006 — an all-time record. The cost of staying in a New York hotel rose 11 percent from $217 per night in 2005 to $241 in 2006. Most hotels were operating at 85 percent occupancy, or higher.
“There’s been a palpable shift in the thought processes of developers,” says Michael Forrest, senior associate at Marcus & Millichap. “For years, the highest and best use was residential luxury condos. It didn’t really matter where it was or what you paid for it; it was easy to pencil out. Now the market has corrected itself. And because of the huge shortage of supply, hotels make sense.”
Existing hotels are preparing for the deluge. At the Belleclaire, management is replacing carpet with laminate floors, hauling in new furniture and installing wireless Internet access. They hope to upgrade from two-star to three-star quality.
The Millburn Hotel on 76th Street is constructing a new business center off its lobby. The Comfort Inn on 71st and Central Park West will redo its rooms at the end of the month. The On the Ave Hotel, across Broadway on 77th Street, also has renovations and upgrades scheduled. And the Beacon Hotel on 75th Street plans to upgrade some rooms and raise rates.
Meanwhile, a number of property owners in the neighborhood are departing from long-standing plans to covert to residential. The Empire Hotel at 44 West 63rd Street at Broadway, for instance, was slated to go condo. Its owners now plan to reopen it as a hotel. On the Upper East Side, Korman Communities, a Philadelphia-based hotel group, recently acquired the former Sutton Hotel on East 56th Street near First Avenue, which was slated to go condo but will now be a hotel once more.
So far, analysts can only point to one newly built hotel on the Upper East and Upper West sides: The Marriott Courtyard at 92nd and Fifth Avenue, which opened last fall.
“There’s been interest in both the Upper East and Upper West Side and there’s certainly interest in nontraditional locations,” says Sean Hennessey, CEO of Lodging Advisors. “But so far, I haven’t seen it translate into too many properties up there.”
That may soon change.
“I think developers are willing to develop in Manhattan in areas that weren’t available before because that’s where they can get sites,” says John Fox, senior vice president of PKF Consulting, an international hotel advisory firm. “In Midtown, sites are so costly, folks have been driven out to places that a few years ago would have been considered more marginal.”
The cost of land decreases farther uptown, culminating in land costs that reach half as much as Midtown once you get north of 96th Street, Fox says. Though plans for a new hotel on 125th Street and Park Avenue were put on hold, a new development with hotel rooms is slated for construction at 233 West 125th Street.
“Right now, you could put a hotel anywhere in Manhattan and do well,” Fox says. “Demand has been so strong we’re driving business out of Manhattan because guests can’t be accommodated. Business is moving to the outer boroughs and New Jersey. We think Manhattan effectively sells out about 200 nights out of the year.”
The biggest factors working against substantial growth in the Upper West and Upper East Side hotel market are zoning regulations. Unlike the area on the far West Side near the Javits Center — which is zoned for manufacturing and is thus prime ground for hotel development — much of the Upper East and West sides is zoned for residential, which restricts development usage.
Still, much space on the main boulevards like Broadway on the West Side and First Avenue on the East Side theoretically allows for further hotel development. The number of new developments in those neighborhoods, analysts say, will depend on how high hotel rates go.