In a Webcast last month, The Real Deal’s Jen Benepe spoke to Sam Chang, CEO of the McSam Hotel Group, about how he’s dealing with the tanking hotel industry and how it’s pushed his plans to retire at age 50 back a few years.
Chang talked about which projects he’s having trouble financing (the larger ones in the $30 million to $40 million range) and which ones his company is paying for on its own. He also told The Real Deal which neighborhoods he’s betting against for future construction. Still, despite the soft market, the king of budget lodging in the city is forging ahead with plans to build and open new hotels.
Log on to www.therealdeal.com to see the full segment and to access the archives. Every week, The Real Deal posts a new edition of the Webcast, featuring exclusive interviews with industry insiders.
The Real Deal: Your company just filed plans with the city to build a 29-story Hyatt Place on East 52nd Street. But we’re in the middle of a recession and the hotel market is tanking. How are you financing that project?
Sam Chang: I really don’t know yet. We bought our land around three or four years ago and it took us this long to get approval. Since we already own the land, we might as well go ahead and file the permit and see how the market goes.
TRD: You are still building somewhere in the neighborhood of 17 hotels in New York City. Which of these projects are the most stressful in terms of dealing with the funding?
SC: Well, the bigger they are, the more difficult and stressful it is for me. For example, on 39th Street we are building three hotels, a total of over 600 rooms. It is a $200 million project and probably the most painful we’ve had.
TRD: The new market reports show trailing numbers for April 2009, with New York City revenue per room down 26 percent. This is the worst in the country. How many of those numbers applied to your portfolio of hotels?
SC: My portfolio of hotels in our segment is probably down around 20 percent. But January to March is always the slowest.
TRD: You were quoted recently saying that you had to lower prices by 20 percent. So, at how many of those hotels are you lowering the prices, how much lower can it go, and can it hurt the bottom line?
SC: [In] all the hotels we own in New York City, the prices are down around 20 percent and I think this will be the lowest we will go.
TRD: Sam, you told the New York Observer that you, despite building in Downtown Brooklyn, really don’t like the market there. Are there any other markets in New York City that you think are bad markets for hotels?
SC: Well, I definitely don’t like Harlem. Harlem is going to depend on overflow from Manhattan. If people can stay in Manhattan, then why would they want to stay in Harlem?
TRD: Going along with that theme, you have three hotels planned for Staten Island, one in the Bronx, two in Downtown Brooklyn and three hotels in Queens. Are you sorry you forged ahead with plans to build those hotels?
SC: I never feel sorry for anything I do. If I did it, I did it. I just have to do my best to finish these projects up.
TRD: You told The Real Deal recently that you are not going to buy any new sites, and five to six sites are actually being held up until financing comes through. But on some of them, like a project in Sunset Park, you said you were actually paying in cash. Is that right?
SC: Yes, for the small projects we will definitely build with our own money. For the bigger projects, like the ones we need $30 [million] to $40 million to build, those are definitely on hold until the financing is available.
TRD: In a previous interview, you said that you wanted to retire by the age of 50. So now that you’re 49 do you still expect to be able to retire by the age of 50, when you are a billionaire?
SC: No, no, no. I mean, a billionaire is out of the question. I was thinking about retiring at 50 when I finish all my hotels, but it doesn’t look like I’m going to finish everything right now, not with this financial crisis. I’m moving my retirement age to 55 and giving myself five more years.
Compiled by Victoria DeCarmine