Hospitality industry soars as dollar drops

Nov 06, 07 | 8:57 am

By Michael Stoler

With the euro and the pound at record highs, visitors are flocking to New York City, making the hospitality industry one of the fastest-growing segments of the commercial real estate market.

Local and international investors are searching all areas of the city for sites to build hotels, and existing hotels are trading at record prices. According to information compiled by the brokerage CB Richard Ellis, at least 15,000 rooms are under development or in planning stages for more than 100 new hotels in the five boroughs, with the majority of rooms planned for Manhattan.

"The hospitality industry in New York is rolling toward setting new records for average daily rate and revenue per available room in 2007," the senior managing director of the Hospitality & Gaming Group at CB Richard Ellis, Daniel Lesser, said.

According to Smith Travel Research, the average daily rate for New York City hotels through June 2007 was $268.82, up 12.2% over the same period in 2006. The revenue per available room was $225.49 for the same period, reflecting a 13.5% year-over-year increase. "Considering that these figures do not include New York City's historical 'busy season' of September through mid-December, it is interesting to note that the city has already surpassed the $267 ADR for all of 2006," Mr. Lesser said.

The executive vice president of the U.S. Hotel Group for Cushman & Wakefield Sonnenblick Goldman, Mark Gordon, said New York City "is in need of additional hotel rooms and many of the new hotels planed are very creative destination hotels. However, a considerable number of hotels will not get built as well, so investors should not get too caught up in the statistics. Given the demand for New York hotels on a global basis and the advancement of Internet-based marketing, boutique hotels will continue to be strong performers."

Last year, the City Investment Fund and Morgan Stanley purchased the Crown Plaza in Times Square. The president of the City Investment Fund, Thomas Lydon, said: "It is our expectation that the hotel market will stay strong for the foreseeable future 12 to 24 months, especially if the dollar stays at the current levels versus most currencies. Well-located Midtown hotels should be able to increase room rates in the 5 to 10% range. The most vulnerable hotels are the mid-block hotels in non-prime areas that will see the immediate effect of any slowdown in business activity and tourism. Many thousands of rooms are being completed in 2008/2009 counting on 85% plus occupancy, and room rates, which are projected of the top of the market. These hotels will need to be permanently financed after construction with much more stringent underwriting requirements. This could lead to a number of situations where the equity requirements are greater than the sponsor's resources, or very low returns are being earned from operations for several years."

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Source: The New York Sun