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Across Long Island, New York, the Lodging Industry Began to Stabilize
 in 2006 as it Finally Absorbed the 20 Hotels Built Since 1999
By Daniel Wagner, Newsday, Melville, N.Y.McClatchy-Tribune Business News

Feb. 5, 2007 - -If you want to book a night in a Riverhead hotel, you have two choices: You can get a room at the Holiday Inn Express on Route 58, or stay at a nearby Best Western. But if developers and town officials have their way, visitors in a few years' time could find a multiplicity of options.

Developer Lee Browning Sr. has started building a 114-room Hilton Garden Inn across from the Tanger Outlet Center and has plans for a 140-room Marriott Residence Inn on an adjacent site. Riverhead Renaissance Llc has included a 100-room Hilton-branded hotel as part of its major downtown redevelopment plan. The owner of Atlantis Marine World, also downtown, wants to erect a 120-room hotel and conference center nearby. And the town's negotiations with bidders for the now-vacant land in Enterprise Park at Calverton at times have focused on the importance of bringing a hotel to the site.

Those proposals would add well more than 500 rooms to the existing 189 -- a daunting prospect for Robert Salvatico, who owns and manages the two existing hotels with his father and uncle. He said that during the months between Labor Day and Memorial Day, his hotels are more than half empty.

"If I'm only selling 40 percent of my available capacity, what would a new hotel do? It's a scary thought, because Riverhead isn't developed yet," he said. "They need some real business out there, whether it's a corporate headquarters or a recreational park."

Moke McGowan, head of the Long Island Convention & Visitors Bureau and Sports Commission, agreed. "It's the same pie split three ways instead of two," he said. "There is no product driving this [expansion], and there's no product on the immediate horizon." Without considerable expansion on the East End, he said, "it's merely a continuous cannibalization of existing business."

The concern about overbuilding is not isolated in Riverhead. Across Long Island, the lodging industry began to stabilize last year, having finally absorbed the 20 hotels built since 1999, according to new data from Island Publications, a Newsday subsidiary that tracks the hospitality market.

Island Publications' annual report says Islandwide occupancies saw a modest increase of 0.76 percent, to 72.14 percent, during 2006, but there was variation between the markets of Nassau, western Suffolk and eastern Suffolk -- the towns of Brookhaven and Riverhead, plus the North and South forks.

Lodgings in eastern Suffolk, where business is highly seasonal, experienced a slight drop in occupancy -- 0.59 percent, to 40.93 percent -- while western Suffolk occupancies rose nearly 3 percentage points, to 74.30 percent. Nassau occupancies dropped 0.47 percent, to 72.55 percent.

In Nassau, the average cost of a one-night hotel stay rose almost $8, to $155. Suffolk saw more modest rate increases, with average cost in the western part of the county rising $2, to $129, and the eastern portion rising $1, to $170.

These numbers reflect a stronger market than in the years immediately after the Sept. 11, 2001, attacks, when only eastern Suffolk had rising occupancy rates -- especially in light of the 1,941 new rooms the market has absorbed since that date. But many established hoteliers fear that the appetite for development remains too strong, with four hotels under construction Islandwide, and that the addition of new inventory without demand-generating development could undercut rates and prevent operators -- both new and old -- from remaining profitable.

"The main thing is, if we can get some businesses in here everything will be fine," said Mike Johnston, general manager of the region's largest hotel, the 618-room Long Island Marriott Hotel & Conference Center in Uniondale, and president of the Long Island Hotel and Lodging Association.

"You've got to hope that the government's working hard and bringing big business in. This whole Nassau Hub deal would be tremendous for us if the deal goes through," he said, referring to a large mixed-use development proposed for the area surrounding the Nassau Coliseum next door.

Johnston and McGowan attributed the stability of the market largely to contractual business with airlines that have been priced out of Queens hotels. Under these arrangements, some Nassau and western Suffolk hotels, including Melville's Hilton Long Island, set aside blocks of rooms for airline crews' overnight stops. This guaranteed-sales cushion shows up in occupancy rates whether the rooms are actually used.

"Occupancy would have fallen without the airline contracts," Johnston said, though he said new hotels going up near Kennedy and LaGuardia airports could temper that part of the business.

Looking far ahead

But hotel developers, and the large companies that have bought at least 10 Long Island lodging properties this year, insist there is plenty of reason for optimism. Browning, whose Hilton in Riverhead broke ground just before Christmas and who has received approval to build the adjacent hotel, said those who look at existing demand to judge a project's viability misunderstand the pace of hotel development. (Browning battled with Brookhaven since 1999 for permission to build a separate project in Ronkonkoma, just north of MacArthur Airport, that won't break ground until April.)

"I don't see it as cannibalizing the market," he said, explaining that he delayed building one of his Riverhead hotels to allow for the pace of absorption. "You have to project three to five years in advance, and when these [Riverhead] hotels come up to speed, I think the demand will be there" because of Riverhead's planned downtown revitalization and proposed attractions in Calverton.

Jack O'Connor, a principal in the Melville-based brokerage Newmark Knight Frank, agreed that careful hotel investment with an eye toward future development could bring success to prospective Riverhead hoteliers.

"It's probably right that they have a hard time in winter," he said. "But with the redevelopment of downtown and growth going on in Calverton, I think within two or three years, they're all going to be flourishing out there.

"You can't overproduce hotels; just do your homework, and I believe in a few years the winter drought will not be a winter drought any more."

Haven for investors

But in a year that saw many pioneers of the Long Island hotel business -- including Mel Goodman, who built the Ronkonkoma Econo Lodge in 1961; and the Mullaney family, who in 1978 were among the builders of what was then the biggest hotel on the Island, the Smithtown Sheraton -- selling out to off-Island companies, it's clear that the broader realities of the real estate market play a role in local hotel development decisions.

"The big picture is that commercial real estate is a commodity for making money," said Paul Amoruso, a hotel developer and managing partner of the Jericho-based commercial real estate brokerage Oxford & Simpson, "and the commercial sector continues to be an area where hedge funds and institutional money in general are extremely attracted."

A key driver of hotel development here is "a plethora of capital looking to find a haven with what they view as safe, consistent real estate," he said. "The point is, this is not an anomaly; this is a very clear direction by different investors."

Amoruso said even some existing hotels facing new competition "are doing the best they've ever done." For example, he said, his Homewood Suites in Melville is exceeding rate and occupancy expectations.

"You have a change in the stewardship of the hotels; now you have a more sophisticated buyer," he said. "On Wall Street, there's billions and billions of dollars that has no place to go and they're finding real estate."

That, Amoruso said, is why "you have larger hotel owners entering the marketplace and purchasing and putting their flags down on Long Island and having a piece of the Long Island rock."

359 Hotels on LI (53 Nassau, 306 Suffolk)

  • 17,055 Hotel rooms on LI (5,281 Nassau, 11,774 Suffolk)
  • 4 New hotels under construction
  • 428 Rooms under construction
  • 24 Proposed hotels on LI (6 Nassau, 18 Suffolk)
  • 3,792 Proposed new rooms  NOTE: Proposed hotels are at various stages of development; some are close to breaking ground, others are years away.

Copyright 2007 Newsday Inc.

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Copyright (c) 2007, Newsday, Melville, N.Y.

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