Downtown N.Y. Hotels Reopen, Signal Gradual Rebound

In another sign that the downtown Manhattan lodging market is recovering from the terrorist attacks eight months ago, the Embassy Suites in Battery Park City on May 1 was the latest hotel to reopen since closing on Sept. 11. Executives at other downtown hotels confirmed that business travel, while still below usual levels, gradually was regaining a sense of normalcy.

At the same time, a number of large firms that relocated from the World Trade Center area in the aftermath of the attacks have opted to remain in the neighborhood, and with more companies comes an increase in business travel. Government agencies, meanwhile, last month set a year-end deadline for plans to be announced for rebuilding the trade center site.

As the downtown market continues to stabilize, buyers who bring significant travelers to lower Manhattan will need to react accordingly. Those who had increased their room coverage in midtown post-Sept. 11 may want to shift this inventory back downtown. However, if their sense is that travelers still are more comfortable in midtown, they may want to retain a wait-and-see attitude.

Aside from the 463-suite Embassy Suites Hotel, the 504-room Marriott Financial Center also is back in business, having resumed operations in January. Only the 561-room Millenium Hilton, which directly overlooked the site of the towers, remains shut with no reopening date set. The 817-room Marriott World Trade Center Hotel was destroyed when the building collapsed and will not be rebuilt. The opening of the new 298-room Ritz-Carlton Battery Park, scheduled for October, occurred in February.

"With the exception of 30 to 40 suites that were redone, the hotel that's reopened is the same property everyone remembers," said Emily Pazzaglini, director of sales and marketing at the Embassy Suites. "The building didn't experience any structural damage, but was closed so that environmental issues resulting from Sept. 11 could be addressed."

The hotel, which initially opened in April 2000, is the largest in the Embassy Suites system, and is part of Hilton Hotels Corp. "The added value proposition of having the extra room in the suite is as relevant now as it was when we first opened," Pazzaglini said. "Especially for business travelers, the extra space comes in handy because it can be pressed into use as an office away from the office."

Returning to downtown from temporary offices in midtown in anticipation of the reopening, Pazzaglini said she felt the sense of community in the neighborhood getting stronger every day. "American Express, Merrill Lynch and Deloitte & Touche all have announced that they'll be reoccupying their former space in the World Financial Center, and that's fueling the sense of optimism."

In fact, in addition to the 3,000 employees American Express started moving back to its World Financial Center headquarters last month, the travel and financial services company is scheduled to house an additional 560 people in the building who were supposed to be relocated to offices in Jersey City, N.J. This brings the headcount to near pre-Sept. 11 levels.

At Deloitte & Touche, 3,500 employees will have returned to the complex by September. "Included are 600 who have been working out of temporary offices set up in the Marriott Marquis Hotel in midtown," said Margaret Moynihan, director of the firm's global conference and travel groups.

Ironically, considering that lower Manhattan traditionally has been a business travel destination, downtown hotels reported a surge of weekend leisure business in the first quarter. "While the numbers of transient business guests during the week are still down, the numbers are growing steadily," said Manfred Timmel, general manager of the new Ritz-Carlton. "What's surprising is how strong the weekend business has been." Many travelers in response to an advertising campaign underwritten by the local business improvement district want to visit Ground Zero and show their support for the neighborhood.

"But for a new property like ours, strong weekend business is still good news because we need trial usage and the visibility that comes from just bringing people into the hotel, which overlooks the Statue of Liberty," Timmel said. "Good word of mouth, after all, leads to referrals for business stays. People need to be reassured that access to the hotel is good and that the air quality is fine."

In the same way, Timmel said the hotel was booking an unexpected number of corporate dinners and special events. "These also help create important visibility for us."

In other circumstances, the addition of such a large property as the Embassy Suites to the market would be viewed with dismay by the competition, but not in this case. "We're actually glad when another property reopens because it means downtown is another step closer to normal," said Rose Genovese, director of sales and marketing for the 144-room Regent Wall Street, who confirmed that transient business travel at The Regent also was returning to normal levels, if gradually. Regent is part of Carlson Hotels Worldwide.

"The question initially is whether demand will catch up with the additional available rooms. But as companies continue to move back downtown, that's less of a concern," she said. "Besides, each property is different and has its own niche in the market."

As the excavation of the World Trade Center site progresses faster than originally was expected, clean up and recovery crews and their heavy equipment can leave the neighborhood. This has allowed transportation arteries to reopen. "The opening of West Street on Good Friday was significant because it meant taxis could get down here," said Roger Borsink, general manager of the Marriott Financial Center and vice president for Marriott's New York portfolio. "It was a big positive for us."

Another transportation milestone was the April 19 reopening of the south pedestrian bridge across West Street connecting the World Financial Center with the trade center site. A second bridge was destroyed on Sept. 11.

Borsink, however, acknowledged—as did other hoteliers—that higher occupancy levels were achieved at times by trimming room rates. "There's been more pressure on rates generally," he said. Yet, hotels in midtown and other parts of the city have lowered rates too, in an effort to stimulate demand in the face of the weak economy and slump in business travel.

Indeed, data from the lodging industry tracking firm Smith Travel Research confirmed that this has been going on. For example, in March, the latest month available, occupancies in the city overall were down 5.2 percent, compared with March 2001. Average room rates, by contrast, were off 13.4 percent, compared with the prior year.

While the recovery downtown in occupancy levels and room rates has been progressing steadily, hoteliers said they were realistic for the short term. "We realize it might take a full year or longer before we see a full recovery," Genovese said.

As a lodging market, downtown was markedly distinct from midtown even before Sept. 11. "When the economy took a downturn, we felt the effect first because our own business mix is heavily weighted toward financial services. Accordingly, we're not as diverse as midtown. Then came Sept. 11," said Frank Nicholas, general manager of the 138-room Holiday Inn Wall Street, which is part of Six Continents Hotels & Resorts.

"Travelers who opt to stay downtown prefer it because of the convenience to the businesses here. Staying in midtown can be too stressful, trying to get a taxi and make it down here for a 9 a.m. business appointment," he said. "That was true before Sept. 11 as well."

Travelers who book downtown tend to be there to work. "That's why so many of our business guests are in their rooms by eight or nine at night," he said. If they wanted to go shopping or to the theater, they'd stay in midtown."

Also located downtown, Oakwood Worldwide, a corporate housing provider, has a large block of apartments in The Ocean, a historic building recently renovated into apartments across West Street from the Ritz-Carlton. "Like the transient and group sides of the lodging industry, corporate housing downtown has suffered as a result of the weak economy, a decline felt even before Sept. 11," said Noel Hernandez, Oakwood senior district manager for its New York portfolio.

As in the other sectors, the market has shown signs of improvement lately. "An upward trend started in February and really kicked in in March, though there's been rate cutting here too," he said.

Driven by the economy, typical lengths of stay at Oakwood's 86 units in The Ocean have gotten shorter this year. "Companies don't have the same budgets they had a year or two ago, so average lengths of stay are down from the 72 days we had been seeing," Hernandez said.

In addition to consultants and employees on long-term training assignments downtown, corporate relocations make up the biggest source of Oakwood's business. "Again, because of the economy, there's more inventory available for permanent housing, which has meant people are spending less time in temporary situations, while they search for an apartment or house," he said.

For hotels downtown as well as for the lower Manhattan community overall, a sense of normalcy won't fully be possible until there's a plan in place for the eventual redevelopment of the trade center site and a thorough overhaul of the transportation network. Along with restoring the mass transit grid is the opportunity to streamline and improve a system that had been cobbled together over generations. In April, the Port Authority of New York and New Jersey, which owns the trade center site, and the Lower Manhattan Development Corp., announced a three-part timetable to accelerate the project. By July 1, six options for the site are due. Two months later, that number will be reduced by half with a final selection due on Dec. 1. At that time, a list of transportation recommendations also is due.