Kensico Begins Ulurp for 509 Madison Conversion

The starting gun has sounded for Kensico Properties’ slow march to a luxury hotel in Midtown Manhattan.

The Department of City Planning certified the developer’s application to transform 509 Madison Avenue from a 21-story office building to a 30-story hotel, Crain’s reported. That officially launches the application into the seven-month Uniform Land Use Review Procedure, which will require approvals from numerous stakeholders before Kensico can go forward.

Hoteliers Nabil and Fouad Chartouni are planning the Lowell Modern, a companion to the luxury Lowell Hotel in the Upper East Side. Their proposal calls for 96 rooms, amenities and a lobby across 139,000 square feet, fronted on East 53rd Street. There would also be 3,300 square feet of retail space on the ground floor fronting Madison Avenue.

Interior demolition of the office building is already underway and the final tenants are expected to leave after Christmas, according to an adviser to Kensico. Tenants at the building at the time the application was filed in August include investment firm Banyan Tree Capital Management, private equity firm Yellowstone Capital Partners and Kensico itself.

Full demolition and construction is expected to start at the beginning of the new year, targeting an early 2028 completion.

In 2017, Kensico put its leasehold of the office property on the market, even though it boasted high occupancy rates that remained strong. The leasehold never sold, forcing the pivot.

Kensico has developed and invested more than $2 billion in real estate across the globe, spanning office, retail and hospitality properties. The Lowell Hotel, which it acquired in the 1980s, is considered one of the more luxurious hospitality properties in all of New York City.

But hotel development has become increasingly hard to come by in the Big Apple, and not just because of how the pandemic temporarily disrupted tourism. A 2021 City Council bill mandated a special permit for new hotel developments, essentially freezing the sector’s construction pipeline; not a single permit was approved in the first year of the legislation.

The daunting prospect of developing a hotel today could come with a big reward on the other end. The lack of incoming supply — plus a crackdown on the short-term rental industry — is helping to boost the occupancy and room rates of properties that hung tight through the lean years.

— Holden Walter-Warner