Manhattan: A Meat Market For Overzealous Hoteliers?

<B> Manhattan: A Meat Market For Overzealous Hoteliers?</B>

By Robert Selwitz

Though Big Apple occupancy rates have slipped roughly 2 percent during the first six months of 1999, compared with the first half of 1998, business travelers should not expect much price relief. Even though, according to PKF Consulting, occupancies now are just under 79 percent, there are still hundreds of sold-out room nights during the periods business travelers are most likely to flock to New York.

Thomas P. McConnell, senior managing director of Insignia/ESG Hotel Partners, said, "when you remove holidays and the worst weeks in August, you're still in a situation when--more often than not--quality hotels can charge rates at or very close to rack. Even with this year's falloff from last year's above-80 percent occupancy rate, there has been no appreciable addition of rooms, which is another reason why New York continues to run occupancy rates higher than anywhere else."

Furthermore, investors continue to hunt for new hotel opportunities in Manhattan sectors, some of which at first appear to be bizarre. For example, plans are afoot to site a $300 per room, 200-room project at Ninth Avenue and 13th Street--an area that for decades has been called the "meat district," and was best known for its flesh peddling: Beef carcasses by day, transvestites by night. However, despite scents that no one would confuse with Chanel, this location--at the far northwestern corner of the West Village--is quite close to areas that have become surprisingly trendy. Hip restaurants, art galleries and shops are somewhat counterbalancing the area's traditional image.

When PKF's senior vice president John Fox was asked about an upscale hotel located in this area of dubious drainage and seemingly far from prime business destinations, he said, "the transportation isn't all that bad. The subway is just a block away, and people coming here are more likely to rely on cabs or limos anyway."

Nevertheless, Fox said, with a current pool of 55,000 rooms, the proposed meat district hotel would be part of a block of some 7,000 new rooms likely to be in operation by 2002. Given that, "even if occupancy rates slipped into the low 70s, we'd still be nowhere near an overbuilt situation."

Fox also stressed that the new property's $300 rate "isn't so much above the $225 average that New York will have reached by year-end."

McConnell sees the proposed property as part of an ongoing trend--spreading hotels throughout nontraditional districts. "In areas such as SoHo and TriBeCa, hotels are filling niche market as well as conventional business needs," he said. "We're long past the days when quality New York hotels were bundled between 42nd and 59th streets."

What's happening now is quite common in other world class cities, McConnell added. "In London, for instance, a good percentage of its lodging stock is not in center city." Nevertheless, he said $300 a night in New York's meat district "might be a bit of a push. The only way to justify those rates in a fringe area is to be smaller than 200 rooms, and absolutely in the heart of that district, a true 'A1' location." As an example of that kind of success, he cited the "90-key Mercer Hotel. It's at absolutely ground zero in SoHo."

"It wasn't so long ago that the idea of building a hotel in SoHo was absolutely crazy," said Fox. Many people assumed that since there had never been a quality hotel anywhere near there, any such property was doomed to fail. "But we worked on the study that pointed to the likely success of the SoHo Grand. It's perpetually packed and we're very pleased to see how well it has done. What's critical," he stressed, "is the need to look at hotel development over the next 20 to 30 years. Real estate projects have long lives. You can't just weigh prospects for the next two or three years."

More cautious about building in what he calls "tertiary locations" is Frank Dougherty, senior vice president of HVS International. "If that proposed meat district property opened today it would do just fine. But with new room supply coming, much of it in primary and secondary sites, any real decline will first hit tertiary sites." He's also dubious about many of the proposed projects since "out of the many projects that get announced, very few get financing. It's definitely cheaper to put out a press release than sink steel in the ground."

As for citywide room rates, Dougherty said, "for much of the year, there are still too many people wanting a hotel room in New York. And when the key question is whether or not I can find a room, what the room costs often becomes a secondary concern." He also predicted rising room rates resulting from hotels eliminating locally negotiated rates for all but their top producers. "Today, you simply have to be a much more significant patron in order to get negotiated rates. For those on a hotel's 'B' or 'C' list, charges are likely to be much closer to rack rates."

New York inbound travelers can take solace in the fact that reasonable hotel rates are available, if one is a bit more flexible about location. Dougherty pointed to properties such as the Quality Hotel at Broadway and 94th Street, where during August a weekday room was obtainable for $118, and the Comfort Inn on 71st Street, where weekday single summertime digs cost $109.

The Habitat, a conversion of the Hotel Allerton at 57th Street and Lexington, has nightly rates of $135 for a room with private bath, or $95 for a shared bath. "Even though half its nearly 300 rooms feature shared bathrooms, the place is swamped," said Dougherty.