Traumatized since 2001 by the consequences of September 11, New York's luxury hotel industry has been rising back out of the ashes for two years to achieve its best performance levels.Now, another danger lurks: owners are entering into arbitration under pressure from real estate investors who are pushing them to transform all or part of welllocated hotels into luxury apartments. Multi-use is becoming the rule and the condition for facilitating big openings while Boutique hotels are springing up like mushrooms.
New York recently honoured the fifth anniversary of the September 11 terrorist attacks. While the tragedy remains fresh in everyone’s mind, their disastrous effect has subsided. American growth is there. Confidence is back. And for New York’s hotels today’s situation is flourishing. Their performance has surpassed the historic high achieved in 2000. New York sold 22 million nights in 2005, or a million more than in 2004. “The MICE segment began to take off again in 2003 and continues to grow today. We are beating records on both the international and domestic market,” rejoices Lisa Mortman, VP Communications of NYC and Company, the city's official tourism marketing organization.* The Carlyle, Four Seasons New York, Jumeirah Essex House, Loews Regency Hotel, Mandarin Oriental New York, Mandarin Oriental The Mark, New York Palace, The Peninsula, The Pierre, Hotel Plaza Athénée, Righa Royal, Ritz-Carlton Battery Park, Ritz-Carlton Central Park, The Sherry-Netherland, The St Regis, Trump International Hotel & Tower, The Waldorf-Astoria. Occupancy rates approached 85% for the whole of the year. The city’s hotels succeeded in using this intense activity to increase the RevPAR by nearly 20% in 2005. Noblesse oblige, it is the most prestigious properties that got the most out of this extremely high demand. The vitality of America’s economic and the weak dollar meant they had a wide margin for manoeuvring in order to increase average daily rates. “Luxury hotels in particular have fared much better than the average hotel,” comments Simon Neggers, Sales and Marketing manager at the hotel St Regis, one of the many members of the Signature Collection, the marketing alliance that groups together the city’s luxury hotels*. “And we do not expect that to change even if the economy softens a bit. [Our clientele] is not sensitive to economic fluctuations,” he continues.Another phenomenon explains this impressive growth in revenue per available room: New York’s shrinking hotel supply. The upscale market lost more than 2,000 rooms in two years. For the first time since 94 – just following the Gulf War, another difficult period– the Big Apple’s hotel supply shrank. According to HVS International, the supply dropped by 0.6% in 2004 and by 1.5% in 2005. The top brass in New York’s hotel industry must stand up against a major adversary: residential real estate investment. The offer in the heart of Manhattan is limited and prices are out of control. With their prestigious addresses, hotels constituted an easy prey at a time when hotel yield was down. And investors pockets were full... The Delmonico, The Empire, the InterContinental Central Park, the Regent, the Wyndham all closed their doors one after the other. The Stanhope Park Hyatt was no exception and its 185 rooms that were renovated in 2003 will become 36 apartments. And the Swissôtel Drake is in the hotseat.In 2004, El Ad Properties made the front page of newspapers when it bought the city’s icon: the Plaza. "The hotel needed renovating and I didn’t want to spend money," explained Kwek Leng Beng, the president of Millennium & Copthorne. Its co-owners, the group Millennium & Copthorne and the Prince Al Waleed, achieved a fine profit by reselling this historic monument on the corner of Fifth and Central Park South. They bought it from Donald Trump for 375 million dollars in 1995. The Israeli developer, the North- American branch of El Ad Hotels, had to spend 675 million dollars (530 million euros) to acquire it, beating the record price of 650,000 euros per room.In 2005, the aging hotel closed its doors and 275 million euros were invested in an extensive renovation. The new owner’s initial goal got a lot of attention from the press. The conversion of the Plaza into luxury apartments and residences led to protest. One campaign, led by many artists, was organized to put pressure on the buyer in order to preserve the building’s function as a hotel. "Save The Plaza" bore its fruit. Of its 900 rooms, the Plaza will maintain 150 rooms for a very upscale clientele alongside its 350 apartments and residences. And it will rehire Edwin Trinka, the doorman who, in 42 years with the house, saw all the greats of this world pass through its doors.El Ad is banking on today’s popular concept: the multi-use complex. The owners are placing their eggs in several baskets to limit the risks and take full advantage of the different cycles. Twenty years ago, the celebrated Pierre already underwent a similar treatment when it saw some of its rooms transformed into apartments. Today multi-use hotel developments are common currency on that side of the Atlantic, and even more so in New York. All the more so since, according to Lisa Mortman, developers benefited from “incentives to invest in such complexes”. Once again, New York was a trendsetter. The St Regis also rationalised its inventory. “The St. Regis has fully embraced this hotel condominium model by converting 2 floors into The St. Regis Residence Club (fractional ownership) and 2 floors into full ownership St. Regis Residences. This way, we allow the selective few to own a part of Manhattan’s history,” explains Simon Neggers.“The current real estate market here in New York City indicates that residential condominiums and luxury residences are a more profitable, lower risk investment versus hotels,” remarks Tammy Peters, director of Public Relations at the Mandarin Oriental, New York. The real estate market is booming. Renowned architects, Frank Gehry (Financial district), Norman Foster (Tribeca) and others are building residential towers. According to the real estate company Prudential Douglas Elliman, the square feet for a luxury apartment goes for $1,350 versus $1,000 for a hotel room of the same calibre. A higher price guaranteed by the access to the facilities of a hotel. A condominium can easily surpass a million euros. Those in the Plaza are going for 1.6 to 9 million dollars. The must: a triplex with view over Central Park for the tidy sum of 29.5 million dollars. “With more capital flowing into prime real estate, we think this trend is here to stay,” admits Simon Neggers.Nonetheless, hotel investment is regaining its health. “We’ve always seen these entries and exits,” remarks Lisa Mortman. While others closed their doors, several hotels opened them after September 11: the Ritz-Carlton Battery Park and Central Park in 2002; the Mandarin Oriental in the Time Warner Center at the end of 2003. Now the pendulum’s swing is reversing. The Empire is proof. Originally destined to demolition, the hotel will reopen its doors very soon to become a midscale hotel. Openings will multiply in the months to come. The Big Apple will offer 70,723 rooms at the end of 2007, of 5,000 more than today. New York’s market has entered a new development cycle that affects all categories.In this trend-setting city, the Boutique segment leads the dance with, in the next months, André Balazs’ Standard, 6 Columbus Circle and Allen Street conceived by Jason Pomeranc, Vikram Chatwal’s Night Hotel, Robert de Niro’s Downtown Hotel and Gramercy Park, Ian Schrager’s newborn, a multi-use complex in the heart of Manhattan’s exclusive Gramercy Park neighbourhood. Two Armani hotels should also open their doors in a more distant future. “They reflect the frenzy of New York, but they are not in competition with the luxury hotels. They address another public," considers Lisa Mortman. Tammy Peters elaborates: “We can be on a par with the best of them vis-à-vis a clientele coming to New York for the first time”. Among these, located in the lively neighbourhoods such as SoHo, Tribeca or Times Square: the Gansevoort, the W by Starwood, the Mercer, the Dylan, the Parker Méridien...A member of the Signature Collection, the Righa Royal is a hybrid of luxury and modernity. The hotel is in the process of a metamorphosis to become the London NYC. Without ever closing its doors, the hotel will under go a name change, a complete renovation with a modern “Anglo- European” design, signed by the Irishman David Collins. “The London NYC will create a new standard for modern luxury,” hopes Jean-Jacques Pergant, co-president, LXR Luxury Resorts. With an important recruit: Gordon Ramsay, the British chef who is set to defy the likes of Thomas Keller, Jean-Georges Vongerichten, Eric Ripert who were recently rewarded by the Michelin guide.The most recent changes in the luxury hotel industry must be credited to new players from afar. The Big Apple is a flagship for the entire hotel brand. Jumeirah and Taj have understood well. In summer 2005, the Indian group took over operations of the mythic Pierre from the group Four Seasons – which has kept its property between Park and Madison. Taj will invest nearly 30 million euros “to restore the property to its richly deserved grande dame status,” according to Raymond Bickson, managing director of The Indian Hotels Company Ltd.Yet an other group that is very active in its worldwide development, Jumeirah Hotels could not miss out on New York. Last January, the Dubai-based group took over operations of the Essex House. “The Jumeirah Essex House represents the company’s first foray into the U.S. market,” Gerald Lawless, CEO of Jumeirah. “In this exciting hotel market, Jumeirah Essex House will establish itself as a luxurious destination for both residents of and visitors to the Big Apple,” explains Scott Dawson. The hotel’s general manager has an important ally for seducing local clientele: the 3-star rated Chef Alain Ducasse. The years to come could also bring other new operations. “New York can easily absorb several other luxury projects,” explains Lisa Mortman. Growth in the upscale offer would be in synch with NYC’s goals for 50 million tourists in 2015 versus 43 million forecasted at the end of 2006 including 7.2 million international visitors. Downtown Manhattan with the forthcoming redevelopment of the area of the World Trade Center or the West Side Development, that ought to have hosted the Olympic stadium in 2012, constitute two nearly untouched zones for the luxury segment. Other perspectives lie outside Manhattan. “We see a trend towards development in zones where the cost of real estate makes hotel development more feasible, such as in Brooklyn, New Jersey or Queens,” observes Tammy Peters. For now, however, only contemporary hotels dare to get their feet wet. A sixth W – the Starwood group’s design brand – will open in Hoboken soon. Will luck fall on those who are brave?* The Carlyle, Four Seasons New York, Jumeirah Essex House, Loews Regency Hotel, Mandarin Oriental New York, Mandarin Oriental The Mark, New York Palace, The Peninsula, The Pierre, Hotel Plaza Athénée, Righa Royal, Ritz-Carlton Battery Park, Ritz-Carlton Central Park, The Sherry-Netherland, The St Regis, Trump International Hotel & Tower, The Waldorf-Astoria.
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