New, Renovated Properties Rejuvenate NYC Inventory

The opening this month of The Alex, a 203-room hotel on East 45th Street, and the reopening in July of the 147-room San Carlos on East 50th Street have brought renewed interest to the hotel inventory located along the stretch of New York City's East Side, immediately north of Grand Central Station. The neighborhood long has been one of Manhattan's deepest hotel markets. Catering to business travelers, hotels located there benefit from their proximity to numerous Fortune 500 headquarters on Park Avenue in the East 50s, as well as to the United Nations headquarters further east along the East River.

In addition to The Alex opening and San Carlos reopening, an established Midtown East business hotel, the 722-room Metropolitan on 51st Street and Lexington Avenue, in July was sold by Loews Hotels to a partnership headed by the Goldman Sachs investment banking firm. Under Loews, the property had been managed under a variety of names for many years, including The Summit and Loews New York, but now will be operated as an independent entity.

While new hotels coming online a few years ago were eager to appear trendy and design-driven, general managers at both The Alex and the San Carlos were quick to distance their properties from the boutique label. Not coincidentally, the original W Hotel, the 714-room W New York, is in this same neighborhood on Lexington Avenue and 49th Street. The W brand often is spoken of as the original boutique hotel chain, though managers at parent company Starwood Hotels & Resorts Worldwide disown the label as well.

"We're a corporate hotel aimed at the mainstream business traveler," said Mary Lou Pollack, general manager of The Alex. "While the hotel has a range of bells and whistles built in, we're clearly on the traditional track. In other words, there's no funny stuff that business travelers might find distracting."

Similarly at the San Carlos, which was closed for 17 months during the renovations, the goal was to create a guest room product that was attractive, but practical. "We hardly wanted to be a trendy hotel," said Christiaan Aldoy, general manager, adding that the boutique concept today isn't as strong as it was in 1999 or 2000.

"With a practical approach in mind, we chose to place kitchenettes, including refrigerators, microwaves and coffeemakers, in each room—and not just suites—in an effort to attract extended stay bookings," he said. "We also tried to make the rooms as user-friendly as possible. T-1 lines for high-speed Internet access, for example, are wired to the desk lamp in the room, so getting online should be less of an inconvenience.

Of The Alex's 203 rooms, 130 are suites, including some two-bedroom, two-bathroom units, that Pollack is targeting for longer-stay guests. "We're not defining ourselves as an extended stay hotel, though if travelers need to stay longer than two or three nights, these suites would be appropriate. They're highly residential in feel and can be used to cater small private dinners. The extra space also comes in handy when people need to use their hotel room as a surrogate office," she said.

Both Pollack and Aldoy acknowledged that their locations are in prime business hotel locations, which is a plus as well as a minus. "Our goal initially is to establish seven or eight major partnerships with corporations whose offices are within walking distance," Pollack said. "Access to Grand Central is another plus. As it happens, 45th Street also is a through street, meaning access by taxis is particularly convenient. In fact, a taxi ride across town from the hotel only costs about $4, which for cost-conscious travel buyers still is a pretty good deal for New York." Similarly, San Carlos' Aldoy is targeting corporations within a 10-block radius.

The drawback is that there are already so many established hotels within a few blocks competing for the same business. The Waldorf-Astoria, which is a block away from the San Carlos, is probably the most well known of these competitors. "But the Waldorf is really in a class by itself, almost synonymous with New York City," said Aldoy, citing the 186-room Kimberly and the 209-room Benjamin, both of which are on East 50th Street, as more realistic rivals.

For such a property as The Benjamin, the service levels at the Waldorf and other deluxe and upper upscale hotels in the immediate vicinity were taken into account when the hotel was being planned. "The property certainly knew the level of expectation travel managers would have of a hotel at that price point in that location," said Rose Genovese, vice president of sales and marketing for The Benjamin's parent, Affinia Hospitality, which used to be known as Manhattan East Suites. "This includes the soft goods and amenities, as well as the physical plant, where the room count includes over 100 suites. To compete effectively, though, you have to be sure you're really looking after the needs of your guests," she said.

If a hotel does not meet the expectations of buyers and travelers, it can find itself at a competitive disadvantage in terms of new arrivals. "Business travelers like to be someplace familiar when they're on the road. It becomes like a second home and allows them to focus on the work at hand. So when a hotel continues to do what travelers need it to do, they're less apt to switch," Genovese said. She added that this is even more important at the deluxe and upper upscale price points because having your expectations met "is what the business traveler is paying for."

The other reality facing both Pollack and Aldoy is that they're opening their hotels in a difficult economic climate. "Opening right now is perfect because it allows us to work out any kinks in the operation," Aldoy said. "Then, as the market starts to rebound, we'll be ready."

In selling The Metropolitan, Loews wanted to concentrate its portfolio on upper upscale properties. Its remaining New York property is the 351-room Regency Hotel on Park Avenue and 61st Street. In announcing the acquisition, the hotel's new owners said they would undertake an extensive renovation of the property in anticipation of an upturn in the market. The property opened in 1961.

"We're strong believers in the fundamental strength of the New York market and have confidence in its long-term prospects," said John Rutledge, a principal in one of the participating investment entities.