N.Y. Downtown Hotel Market Inches Toward Rebound

With the reopening last week of the Millenium Hilton in lower Manhattan, the last of the hotels shuttered on Sept. 11, 2001, is back in business. While neither the downtown hotel market, nor the hotel market of the city overall, has rebounded to pre-recession levels, downtown hotel and corporate housing managers last month reported that business gradually has improved, with certain market segments even showing unexpected strength.

In addition, the Lower Manhattan Development Corp. and the Port Authority of New York and New Jersey in February announced the chosen design for the redevelopment of the World Trade Center site, which includes plans for a hotel with up to 1,000 rooms. An 817-room Marriott hotel had been part of the WTC complex, but was destroyed in the attacks.

The increasing sense of normalcy in lower Manhattan is welcome news to travel buyers who bring a significant number of room nights to the area. Along with the reopening of the Millenium Hilton, the Winter Garden restaurant and retail space recently reopened in Battery Park City, adding to the street life, especially in the evenings.

For the hotel industry in New York overall, the year opened on an uncertain note. "There had been a spike in business in the fourth quarter of 2002, but demand in the first quarter of this year couldn't sustain it," said Sean Hennessey, consulting director of the hospitality and leisure practice at PricewaterhouseCoopers. "Much of this had to do with business travel declining in the wake of the war with Iraq."

The advent of the war led to an increase in the number of cancellations in the city and a decrease in the booking pace as business travelers waited to see what would happen. "What didn't occur was a lot of price discounting in the short term," Hennessey said. "Hoteliers seemed to feel that there was no way offering lower prices was going to produce greater demand. They simply weren't going to see more customers."

Hennessey, who spoke at a recent meeting of the Big Apple chapter of the Hospitality Sales & Marketing Association International, described this as good news for the hotel industry. For travel buyers, it's the opposite because price discounting leads to more leeway on negotiated rates.

Before reopening last week, the structure of the Millenium Hilton had to be taken down to dry wall and hardwood floors. All 586 guest rooms underwent a full renovation, a new restaurant was installed and changes were made in the lobby to make it more service friendly. The work was the direct result of damage suffered in the terrorist attacks. "The front of the building lost a lot of its glass façade in the collapse of the World Trade Center buildings, which were right across Church Street from the hotel," said Roger Swadish, area vice president of operations for Hilton Hotels Corp. "Then there was the risk of contamination to deal with, plus all the debris from the collapse that entered the building."

Swadish has no illusions that the downtown market is the same as it was 19 months ago when the Millenium was forced to close so abruptly. "In the months that have elapsed, there's no question the downtown market has changed radically. We know we'll get back a lot of our clients in the area, despite the change. Monday to Friday the focus will remain business travel, but on the weekends we actually expect to see more leisure business since, in a curious way, the neighborhood has become more of a tourist destination post-Sept. 11."

Last-minute bookings for transient travel have become so prevalent that they are almost the norm, noted Kate Harth, director of sales and marketing at the 298-room Ritz-Carlton New York Battery Park. "With business travelers knowing there's availability, they realize that even if they're planning a trip in four months, they wait until two weeks out to book," she said.

Group bookings, however, have been an unexpected bright spot at the hotel, which has 12,000 square feet of meeting space, including 4,000 square feet of pre-function space. "Because of our location, people assume that the groups we're booking are mostly financial companies. To the contrary, we're seeing considerable pharmaceutical industry business, not to mention bookings from the fashion, retail and legal professions," Harth said.

Demand for corporate apartments downtown has strengthened as well, though the market has shifted toward block contracts. "It's ironic that many of the same clients that were booking blocks of apartments in 2000 are doing so again, though for very different reasons today," said Noel Hernandez, senior district manager for Oakwood Corporate Housing. "Then, it was a matter of availability: Clients were willing to pay whatever price as long as they had an apartment. Now, it's a matter of economics. By booking blocks of apartments, as opposed to single units, clients have more leverage to negotiate a better deal." Oakwood's largest inventory downtown is two floors of apartments in The Ocean, a residential building facing Battery Park.

The other downtown trend Hernandez has seen also is driven by economics. "For many clients bringing people to New York, budgets are such an issue this year, they're doubling up people," he said. "Instead of getting a one-bedroom apartment for one person, they're looking to get a two-bedroom for two, or, in some cases, for four people, which is certainly cost effective." Like other providers of corporate housing, Oakwood books most of its apartments for stays of 30 days or longer.

Meanwhile, the focal point of architect Daniel Libeskind's proposal for the redesigned WTC site, known as Memory Foundations, is a 1,776-ft.-tall spire that would be part of a 70-story office tower. The architect's decision to leave portions of the original complex's slurry wall exposed, surrounding an area known as the bathtub, is another distinctive feature. That area will be the setting for the memorial to the victims of the terrorist attacks. Four additional towers and a freestanding museum or other cultural institution complete the plan. One of the towers, designed to be 65 stories high, would include the proposed 20-story hotel. In one variation, the hotel would be 360,000 square feet and contain 800 rooms. In a second option, the hotel would be 560,000 square feet and contain 1,000 rooms. No timetable yet exists for construction of any portion of the Libeskind plan, including the hotel.