High Demand, Rates Prompt NYC Hotel Development

While the dark cloud of tight hotel occupancies and rising room rates is likely to remain over New York City through 2007 and beyond, there also is a silver lining in the form of new and improved hotels geared to business travelers' needs. With hotels eager to get the most out of the lucrative Manhattan market, more properties are being developed or repositioned with corporate customers in mind.

In the wake of Manhattan's impressive track record of late, hotel companies are looking for opportunities wherever they can. With construction costs and Manhattan site scarcity making ground-up development of large full-service hotels all but impossible these days, developers instead are building small properties or giving extensive makeovers to existing hotels.

Among the hotel companies following both routes is Hilton, which recently introduced its Hilton Garden Inn brand of midprice hotels to the city. The Hilton Garden Inn Times Square, a 369-room property converted from an existing hotel, opened in the theater district last year. The 150-room Hilton Garden Inn Tribeca, a new build, is scheduled to open next spring.

According to Adrian Kurre, senior vice president of brand management for Hilton Garden Inn, the company is looking for further opportunities to expand in Manhattan as well as in the greater New York area. "We had wanted to get into Manhattan for a long time, but the challenges for new development are great," he said. "We were lucky to find an existing hotel that we could reposition."

Kurre said that the Times Square property is doing a brisk business among corporate travelers midweek and among leisure travelers on weekends. Hilton Garden Inn's business amenities, including free Internet access, ergonomic Herman Miller chairs and 24-hour access to complimentary snacks, have gone over well in Manhattan, he added.

"We're offering the same services that we do in our suburban locations and the response from business travelers has been terrific," he said. "Also, the fact that there's not a lot of midmarket supply in New York has been a benefit to us."

Also waving more flags in Manhattan is Radisson, which added the 532-room former Holiday Inn Martinique to its portfolio last summer, renaming it the Radisson Hotel Martinique. The hotel at Broadway and 32nd St., which completed a guest-room renovation that included the installation of Radisson Sleep Number beds and flat-screen televisions, will receive further enhancements next year, including additional meeting space and a supper club recalling the hotel's turn-of-the-century heritage.

At the same time, Radisson recently completed a $20 million renovation of the 705-room Radisson Lexington Hotel. The hotel's remodeled guest rooms now feature Radisson Sleep Number beds, high-speed Internet access, flat-screen televisions, work desks, ergonomic chairs and telephones with dataports. The hotel also added several new dining and entertainment outlets, including some with private dining areas for small groups.

"We're very excited about having two flagship hotels in Manhattan—it's very important to our customers that we have a strong presence there," said Nancy Johnson, executive vice president and brand leader for Radisson Hotels. "We're keeping an eye out for further opportunities there."

Following the renovations, Radisson has been able to put "significant rate increases" in effect at both properties, Johnson added.

Smaller hotels also are looking to benefit from the robust market by upgrading. Already an upscale property, the 192-room Kimberly Hotel in Midtown Manhattan recently gutted two of its floors and created the Luxury Collection: suites and guest rooms outfitted with marble bathrooms, jetted tubs, DVD players, plasma-screen televisions, private balconies and wet bars.

According to general manager Marcia Skyers, there has been no shortage of guests willing to spring for a Luxury Collection suite, which has rack rates ranging from $535 to $690. "This year has been better than last year in that we are able to command a higher rate," Skyers said, adding that the hotel does a brisk business among legal firms. "It can be very challenging to find rooms midweek."

A more dramatic makeover is in store for the Portland Square Hotel on West 47th St. Hotel developer Hank Freid, president of New York-based Impulsive Group, recently acquired the budget property and plans to turn it into a four-star boutique hotel called Sanctuary.

"We are positioning Sanctuary as an upscale destination catering to publishing and corporate executives, modeling agencies and movie studios," Freid said. "This is a great time to be developing a new hotel for business travelers."

According to Freid, the hotel will give guests a "home-like, comfortable" feel with a fireplace and areas for small, informal gatherings.

Guest rooms will feature European bed linens, towel warmers and rain showerheads. Among the choice of accommodations will be a luxurious penthouse apartment with roof access and views of Times Square.

The century-old hotel will remain open during renovations, which are expected to be completed in September 2007, and still will be known as Portland Square in the meantime. When work is complete, the room count at the hotel will be reduced from 147 to 115, while daily rates, which currently range from $129 to $189, will range from $265 to $1,800.

Freid's recent hotel ventures also include the opening of the 125-room Marrakech Hotel at Broadway and 103rd. St. in August. The budget hotel features rooms with Moroccan décor, exposed brick and amenities that include coffee makers, high-speed Internet access, flat-screen televisions and European bed linens. The hotel also offers a lobby lounge with a fireplace, bar, sound system, 42-inch plasma screen TV and seating areas.

Although designed with young leisure travelers in mind, Freid said the hotel is drawing a broader clientele than he anticipated, including business travelers. "There's been of word-of-mouth and curiosity about the hotel," he said. "Some guests have business at Columbia University or nearby hospitals."

Freid also is planning a 100-room expansion of his company's Ameritania Hotel, a midprice property located at 54th St. and Broadway. "We had planned this expansion some years ago, but it got put on hold after 9/11," he said. "Now we are moving forward on it again."

Although these and other hotel developments are adding to hotel inventory, hospitality industry analysts said the new supply is barely enough to offset rooms lost to recent condominium conversions and falls far short of what is needed to meet demand.

"Manhattan is running at about 85 percent occupancy, which is pretty much up to the ceiling," said Sean Hennessey, president of New York-based Lodging Investment Advisors. "The reality is that on any midweek night there are hotels all over Manhattan that are turning away 50 or 60 guests," he said. "Even if a new 1,000-room hotel is built, that will fill up too."

Both Hennessey and hotel analyst John Fox, vice president of PKF Consulting in New York, anticipate occupancy levels will remain about the same throughout 2007. Room rates, however, are expected to continue to rise. According to figures from Smith Travel Research, Manhattan hotels will finish 2006 with an average daily rate of $260.19; in 2007, the rate will climb to $286.21.

"It's really just more of the same on the horizon and it's very difficult for the consumer," Fox said, adding that hotels in all categories are enjoying rising demand. "Some business travelers are trading down because they have to and others are trading way up. Some people are staying out in the suburbs and coming in. If you have to be here, you do what you have to do get a room."

One bright spot is that the loss of Manhattan hotel rooms to residential units is abating. "We are certainly over the bulk of seeing existing hotels into residential properties," said Fox. "This is partly because the residential market has softened a bit."

Hennessey agreed, adding that there is slightly more potential for full-service hotel development in Manhattan now than there has been in recent months. "The residential market is cooling off, while hotels are gaining in value," he said. "There's a fear among developers that the residential market might not hold up in a year or two, while the outlook for hotels looks strong. One indicator is that Hyatt has announced plans to build a hotel with some fractional ownership units in the West 40s. That site was to be for condos only."

Also working in favor of new hotel development is the upcoming expansion of the Jacob K. Javits Convention Center. "There is sure to be at least one hotel in the 1,000 to 1,500-room range, plus other smaller hotels," said Fox.