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The City Has 7,000 New Hotel Rooms in the Works, But Can it Fill Them?

By Jill Colvin | December 13, 2011 7:27am
Map of Midtown Hotels
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DNAinfo/Billy Figueroa

MIDTOWN — Booming construction from West 54th to West 36th streets has put the city on track to hit 90,000 hotel rooms by the end of the year — a whopping 24 percent gain since 2006 — and with an additional 7,000 rooms now in the pipeline, there are no suggestions it’s slowing down.

“It’s the fastest pace that the city has ever seen in terms of hotel development,” said Kimberly Spell, chief communications officer at NYC & Company, the city’s tourism division.

But the huge rate of growth has prompted some to question in New York can attract enough visitors to fill the rooms.

NYC & Company expects to welcome 40 new projects over the next 30 months. And while the outer boroughs comprise an increasing chunk of that growth, 22 new hotels, complete with 4,120 rooms, are now under construction in Manhattan alone.

Harry Gross’ new 67-story Marriott hotel is rising at the corner of Broadway and West 54th Street. It promises to be the tallest in the city.
Harry Gross’ new 67-story Marriott hotel is rising at the corner of Broadway and West 54th Street. It promises to be the tallest in the city.
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Marriott International, Inc.

The city’s largest hotel project, a 68-story high-rise that will one day house twin Marriott hotels, is now rising along Broadway and West 54th Street. Closer to Eighth Avenue, construction is underway on a new 34-story hotel with mystery backers.

Further south, more rooms are coming to West 36th Street between Fifth and Sixth avenues, with a new 188-room Hyatt Place at 52 W. 36th St., a Holiday Inn Express at 60 W. 36th St. and a proposed 17-story Ideal Hospitality project at 48 W. 36th St.

“Overbuilding has always been a negative in this industry,” said Joseph Spinnato, president and CEO of the Hotel Association of New York, which has been overseeing the industry in the city for more than 130 years.

Spinnato said that while there are some in the industry who believe the city is approaching its saturation point, he’s convinced there’s still growing room.

“When is the glass truly full? I don’t know. But right now... there are markets that haven’t fully been tapped.”

Driving the embrace of the hotel boom is the fact that, despite the growing number of rooms, the city continues to enjoy the highest occupancy rates in the nation — close to 85 percent of rooms filled last year.

Room rates also appear to be recovering following the crash, with visitors paying $261 per night on average so far in 2011, city numbers show.

Again and again analysts said they are confident that the city will be able to absorb the new rooms.

“I think there is a significant reservoir of unaccommodated demand,” said John Fox, senior vice president at PKF, a leading hotel consulting firm, who noted that part of what has made the industry so strong is that it can benefit from a weak economy. 

When the dollar’s low, he noted, tourists are drawn from overseas. At the same time, Americans who may have otherwise boarded flights to London or Paris, come to New York instead.

Still, he said the room boom will likely have at least a minimal impact on existing rates.

“There likely will be a dampening down of the occupancy rate because of the openings,” he said.

Some credit the hotel boom to developers catching up on stalled projects as the economy improves.

“Things really slowed down after Lehman," said Jordan Barowitz, director of External Affairs at the Durst Organization, who said that, while the market hasn't improved as much as many would have liked, many new projects appear to be coming online.

“The pipeline has been moving much more slowly," he said.

But now, “Stuff is finally going to shake loose,” he said.

Roland deMilleret, managing director of the New York office of HVS Global Hospitality Services, who specializes in the Manhattan market, said that financing essentially “disappeared” in Sept. 2008 because of the crash, with no money available in 2009 or 2010.

While several projects backed by big brands in premium locations have been lucky to secure backing this year, he says the real boom is going to hit in 2014, 2015 and 2016.

“At that time we're going to see a huge spike in new supply,” he said, adding that, even then, supply will likely lag behind growing demand.

Mitchell Hochberg, the principal of Madden Real Estate Ventures who currently serves on the Board of Directors of Orient-Express Hotels, credited the recession for helping to "keep the lid on the market" and preventing overbuilding in recent years.

But he cautioned that, while certain sectors of the market may have lots of growing room, others may be saturated already.

There’s been relatively little growth in the luxury market, leaving room there, he said. And while there’s been a large increase in the number of “select service” hotels, like Courtyard by Marriott and Garden Inn, there appears to be growing demand.

The one space where he sees the potential for too many rooms is in the boutique sector, which has seen numerous newcomers open their doors. To stand out from the crowd, he predicted more branded hotels affiliated with national chains and special features to create buzz.

At the same time, more tourists have been flocking to the city than ever before. NYC & Company expects to hit an unprecedented 50 million tourists before January 1st — a year ahead of schedule.

Many in the industry credit the company for helping to lure new visitors to the city that had never come in large numbers before. The city, for instance, welcomed a whopping 77 percent more tourists from Brazil in 2010 than 2009, thanks to aggressive marketing and partnership efforts, said Spell.

Next year, the group is hoping to turn its focus to India and China, with plans to work with the federal government to push for visa waivers and improve the welcome process to help unlock new demand.

While some, including the author of a recent article in New York Magazine, have questioned whether the city will really be able to continue luring as many tourists in the long run as it has in recent years, Spell shunned the b-word: bubble.

“I think the very definition of a bubble is something that has artificially grown and therefore can’t sustain itself. But we’ve created new infrastructure,” she said.

“This is a change in how we do business,” she said. “It’s not going away.” 

And those jumping into the industry, like Damon Pazzaglini, the chief operating officer at Durst Fetner Residential, are banking on it.

Pazzaglini has recently partnered with Ian Schrager to open a new PUBLIC New York Hotel at 855 Sixth Avenue, between West 30th and West 31st streets — marking his first foray into the hotel industry. He said that he's confident in the city's market and potential for growth.

“The demand is higher today than at any other point in the history of New York City,” said Pazzaglini, who said he feels safe, even if the market stalls.

“We’re so far ahead of all other markets,” he said.  “With that kind of cushion, [there's a lot] we could absorb.”