The city's hospitality industry boom shows no signs of weakening.
"Hotel business is booming and transaction prices are reaching new highs with every sale," a principal at BD Hotels, Richard Born, said via e-mail. "We have been inundated with offers ranging from $500,000 per room for 3 star product to over $1 million for higher end hotels. We have been tempted and have fantasized about selling everything and sailing into the sunset; but for now we plan to hold onto our assets."
He continued: "Our logic is that although there will likely come a time in the future when these assets will be worth less than they are today, I do believe that there will come a time afterward (and it may be 20 years from now) that they will be worth more."
The president of Lodging Investment Advisors LLC, Sean Hennessey, called New York "the only major market in the country that has a surge of demand during the year-end holidays, and this year is anticipated to be the best yet. Advance bookings for 2007 are strong, and the negotiated corporate room rate agreements generally provide for room rate increases well above inflation."
He said all this news is setting the stage for a strong 2007.
Last week the City Investment Fund LP, a joint venture of Morgan Stanley Real Estate Funds and the Fisher Brothers, paid $362 million to KG Land for the 46-story, 770-room Crowne Plaza Hotel, which boasts retail and 180,000 square feet of office space. "The City Investment Fund continues to be bullish on the hotel sector in New York City, especially Manhattan," the president of City Investment Fund, Thomas Lydon, said. "Earlier this year, the fund made a forward commitment to purchase three limited-service hotels in Manhattan."
Early next month, the 150-room Hilton Garden Inn Tribeca at 6 York St., which is scheduled to open in June, will be sold to a joint venture comprising a local investor and a hospitality REIT. An 18-story, 138-room property, the Holiday Inn Wall Street, in September was purchased by LaSalle Hotel Properties, which paid $51.5 million, or $373,000 a room.
Meanwhile, the Jolly Hotel Madison Towers, located at Madison Avenue at 38th Street, will not be sold. According to the trade publications, the 244-room hotel was under contract for sale for $115 million, or $471,000 a room, but the owner, an Italy-based hospitality company, has decided to take the deal off the market.
"It seems shocking that, with business the way it is, we don't see more new hotel construction," Mr. Born said.
In fact, several planned hotel developments have been canceled, including one by Macklowe Properties at Madison Avenue and East 53rd Street, and a Hyatt Hotel at 55th Street and Eighth Avenue that Boston Properties was to build. There are several reasons for the cancellations. First, because of high construction costs, a new, full-service luxury hotel runs about $1million a room. Second, the office market has become so strong and the condominium market has held on sufficiently that such alternate uses still compete for prime sites. Third, at the end of the day, hotels are still viewed as riskier investments and therefore require more equity and/or more expensive mezzanine financing.
"Hotels once slated for conversion to condominium for residential conversion such as the Empire and Wyndham are now coming back as transient hotels," said Mr. Hennessey. "The economics of conversion may still make the most sense in extremely well located properties where sales of condominiums in excess of $4,000 psf are possible," the chairman of the national real estate practice at Greenberg Traurig, Robert Ivanhoe, said via e-mail. "However, there are now very few of these remaining."
Before the end of the year, City Life Hotels, owned by Property Markets Group, is expected to sell its three hotels in Manhattan to a REIT. The properties include the Hotel 57 New York, at 130 E. 57th St., the On the Avenue, at 2178 Broadway at West 77th Street, and the 30 East 30th Street Hotel, on East 30th Street between Madison Avenue and Park Avenue South.
Another property that may be sold is the 1,015-room Roosevelt Hotel on Madison Avenue at East 45th Street, named in honor of President Theodore Roosevelt. The property is expected to fetch in excess of $600 million.
In September, Impulsive Group paid $22 million to acquire the Portland Square Hotel at 132 W. 47th St. Early next year, the company plans to complete the renovation of the 147-room, one-year-old hotel. It will be renamed the Sanctuary and relaunched as a fourstar boutique hotel with just 115 rooms. In August, Impulsive completed the renovation of the former Malibu Hotel, now the 125-room Marrakech Hotel, at 2688 Broadway at West 103rd Street.
In December, one of New York City's leading builders and developers of limited-service hotels, McSam Hotels, will open Hotel 373 Fifth Avenue, at West 35th Street and Fifth Avenue. The 70-room hotel is less than a block from the Empire State Building. The company had owned the adjacent parking lot behind the building and originally planed to construct a 22-story hotel. Two years ago, the parking lot at 57 W.37th St. was sold to a developer of affordable housing.
Fueling the fire for the increase in sales and development of hotels is the enormous amount of capital available for the hospitality sector.
"As a result of the markets superior fundamentals asset values have increased dramatically with most NYC hotels doubling in value over the past 24 months," the managing director and principal at Sonnenblick Goldman, Mark Gordon, said via e-mail. It is thus an "ideal time" to refinance city hotels, he said."In fact we have refinanced one NYC hotel three times in 13 months and another twice in 7 months," he said. "Both times at dramatically increased proceeds with dramatically decreased interest rates."
I concur with Mr. Gordon when he says the city's hotel market "continues to strengthen with no sign of a slow down. While there is some contemplated supply, the midtown market still does not have one full service and or luxury hotel being built. As a result, the NYC hotel market should remain strong for the foreseeable future. The fundamentals of the NYC hotel market are unlike any market in the world."
New York is a great place to visit.
Mr. Stoler, a contributing editor to The New York Sun, is a television broadcaster and senior principal at a real estate investment fund.
http://www.nysun.com/article/43964?page_no=3
