January, 2000 - The millennium and beyond should remain
promising for the Manhattan lodging industry. Our top ten thoughts are
as follows:
1. Stable to Decreasing Occupancy Levels:
In 2000, we should see another slight decrease in overall Manhattan
occupancy levels as new rooms continue to come on line as indicated in
the Proposed Hotel Developments chart.
Although, in Manhattan and on a national level, the economy is still
quite robust, growth has moderated which has had an effect on demand for
lodging accommodations, particularly in the commercial segment. Leisure
travel continues to be healthy, particularly as a result of high levels
of consumer confidence. The imbalance between new supply and room night
demand has caused levels to stabilize and in some cases decrease slightly.
However, it should be noted that Manhattan�s extraordinary occupancy levels
which were at their practical maximum levels in 1998, triggered aggressive
average rate increases. These increases may have driven consumers to outer
boroughs for more reasonably priced accommodations thus impacting occupancy
levels in Manhattan.
2. Moderate Growth in Average Rate:
In 2000, Manhattan should experience continued average rate growth,
albeit not at the pace experienced over the past several years. Manhattan
hotel operators should be practicing aggressive yield management techniques
to balance the slow down in room night demand with historic pressure to
grow average rate. Although a high level of unaccommodated lodging demand
still exists in Manhattan, new supply within Manhattan and in the outer
boroughs may cause operators to suppress rate increases to retain a
loyal customer base. Increases in profitability will need to be driven
more from cost control strategies and tactics.
3. Challenging Capital Markets:
The recent capital markets crunch has stalled, but not completely halted,
hotel development in Manhattan. A number of attractive hotel developments
were able to receive financing prior
to the crunch or through strong banking relationships and/or creative
structurings. As such, Manhattan will have an influx of new rooms in 2000.
However, numerous projects are on hold as financing for ground-up development
and major redevelopment still remains elusive. Many hope that the advent
of Y2K may loosen the reigns on financing for real estate. Much depends
on the continued strength of the economy and Wall Street�s perception of
the industry which continues to be cautious thus suppressing the value
of lodging stocks.
4. Continued Transaction Activity:
Hotel companies with aggressive expansion plans favor acquisitions of
existing product rather than new development and are patiently waiting
for more favorable hotel pricing. Despite
Wall Street�s view of the sector, there has only been a slight increase
in hotel capitalization rates, and most pricing remains aggressive. Conceivably,
many potential sellers are waiting until after the Millennium for a more
stable transaction environment. It is likely that hotel
transactions will continue at a steady pace as market fundamentals
for the Manhattan lodging market remain strong.
5. Increased Presence of Urban Entertainment
Centers:
Various areas around Manhattan will continue to emerge as urban entertainment
centers with plans for development underway in areas such as the following:
Battery Park City: Battery Park
City continues to be developed as a 24-hour urban entertainment market
with two significant projects underway. As previously mentioned, FCR�s
mixed-use project is anticipated to include the following components when
completed: a 463-room Embassy Suites Hotel with an upscale, Larry Forgione-operated
restaurant, a 16-screen Regal Cinema, a New York Sports fitness center,
retail space and other restaurants. The hotel�s 13-story atrium will be
decorated with art work in an effort to promote a community-oriented tone
to the public space. In addition, Millennium Partners also broke ground
on their $205 million mixed-use development in the area. The complex includes
a five-star Ritz-Carlton hotel, luxury condominiums, the Skyscraper Museum
and upscale restaurants. The building overlooks New York Harbor with
views of the Statue of Liberty.
Columbus Centre: Once completed
in late 2003, the 2.7 million square foot mixed-use development will be
one of the largest in New York. It will include a 750,000 square foot Time
Warner headquarters, 685,000 square feet of retail and restaurants, the
Mandarin Oriental hotel, luxury condominiums, and a 1,200 seat hall. As
of late September, the development joint venture of The Related Companies,
Palladium Co., and Apollo Real Estate Advisors had yet to secure financing
for the $1 billion project. This does not stop the CEO of Related Companies
from referring to Columbus Centre as the �...Rockefeller Center of the
21st Century.�
Harlem: While the Harlem Renaissance
occurred in the 1920s, Harlem�s Revitalization is occurring in 1999 with
no end in sight. Harlem has recently seen a decrease in crime and an increase
in number of tourists. In April, Pathmark supermarket opened on 125th Street
and Lexington Avenue as the first full-service supermarket in thirty years
to come to the area. Even the ever-present coffee giant, Starbucks, understands
the economic potential of Harlem as it opened its doors in May on 125th
Street and Lenox Avenue. Harlem USA, a Magic Johnson multiplex theater
and shopping center located between St. Nicolas Avenue and Frederick
Douglass Boulevard, is anticipated to open by Spring 2000. These developments
are anticipated to be the catalyst for new development in the area.
In November 1999, Governor Pataki announced plans for an $85 million
retail/office/hotel complex called Harlem Center to be located next to
the Adam Clayton Powell Jr. State Office Building. The project is anticipated
to be co-developed by Forest City Ratner and the Abyssinian Development
Corporation. Construction of the Harlem Center is expected to commence
in Spring 2000 with the first phase (a three floor indoor mall) to be completed
by 2001 at a cost of $30 million. Seventy percent of the 110,000 square
foot retail space has been leased. The second phase involves the construction
of a 150-room $55 million hotel with a Marriott, Ramada, or Doubletree
flag.
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The Hotel Theresa, once called the Waldorf of
Harlem, was a premier social hub
from the 1930s to the 1960s. Famous guests included
Joe Louis,
Jimi Hendrix, Malcolm X and Fidel Castro.
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Governors Island: The former Coast
Guard base, located one half mile from the southern tip of Manhattan, is
planned to be developed with a hotel, spa and conference center, retail,
apartments, public parks and at least one museum. In addition, an educational
center and a sports complex are included in the plan. The development plan,
created by Governor Pataki and Mayor Giuliani, must be approved by Congress
before it can proceed. At that time, approximately $30 million is anticipated
to be spent to prepare the island for development.
The hotel/spa/conference center component will be developed in a former
military garrison, a
historic landmark which will be renovated to complete the project.
6. Redevelopment of Non-Traditional Hotel
Areas:
West Village, SoHo and Downtown Manhattan are anticipated to see the
most hotel supply growth in the area�s history in 2000 and the next few
years. Projects include the Regent Hotel, Embassy Suites, TriBeCa Grand,
Ritz-Carlton and 60 Thompson. Hotels have blossomed in the area as it has
become a 24-hour neighborhood. The area is not only seeing more tourists
but also more business executives. Longer trading hours on the exchanges
and the infusion of the New Media and information/technology firms has
translated into the emergence of downtown as both a place to work and to
live. For decades, the area, particularly the Meat Packing
District, has been one of the least appealing real estate markets in
Manhattan. Recently, restaurants have been attracted to the meat packing
district�s low rents and large spaces. Additionally the 200-room Greenwich
Village Hotel has been proposed for a site on 13th Street
and Ninth Avenue.
7. Hotel Development in Outer Boroughs
and Northern New Jersey:
Due to a strong regional economy, Manhattan�s inflated room rates and
overflow demand,
the boroughs and Northern New Jersey have experienced rising occupancies
and ADRs. There are developments in various phases within the boroughs
and in New Jersey
that will affect the areas� hospitality industry. On the New Jersey
waterfront, a nine-story Hyatt Regency Hotel is anticipated to be built
within a mixed-used project at Harborside Financial Center. Another mixed-use
project being developed is Jersey City�s Colgate Center which will include
a 400-room hotel. Staten Island is slated to see the development of its
second hotel according to developer Richard Nicotra. He plans to build
a 160-room Hilton Hotel at the Staten Island Corporate Park for approximately
$20 million. The Island has also been approved as the location of a minor
league baseball stadium. The 7,500 seat stadium will be located on the
waterfront next to the Staten Island Ferry Terminal. While still in the
planning stages, the Pomeranc Group may develop two 200-room hotels to
the Queens market. One hotel is anticipated to be located at John F. Kennedy
International Airport while the other, a 217- room Ramada Inn, is anticipated
to be located on 114th Street and 37th Avenue in Corona. While the Bronx
has no hotel developments planned, the borough is home to a tourist attraction
and a possible future attraction that will affect the industry. The $43
million, 6.5 acre wildlife habitat named Congo Gorilla Forest opened in
June of 1999. The exhibit features 300 animals. By the end of 1999, the
Planning Commission will vote on the development of an 18-hole, $22 million
Jack Nicklaus golf course. If approved, construction of the course is expected
to commence in 2000 and be completed within eighteen months. (Editor�s
note: We think the Yankees will stay in the Bronx!) A new hotel has been
proposed for Brooklyn� s DUMBO (Down Under Manhattan Bridge Overpass) area.
Architect Jean Nouvel hopes to realize the same performance levels which
the Brooklyn Marriott has been able to achieve.
8. Jacob Javits Convention Center Status:
As of mid-October 1999, the plans to expand the Jacob Javits Convention
Center on 34th Street and 11th Avenue had been stalled. New York City�s
Mayor Giuliani opposes the
expansion of the 814,000 square foot state-owned facility. The original
plan was to expand the Convention Center to 31st Street at a cost of $700
million which would double the floor space. While Governor Pataki is in
favor of the expansion, Mayor Giuliani is in favor of building a new sports
stadium in the area either for the New York Jets or Yankees. No final decisions
have been made.
9. New York's Senate Race to Heat Up:
As Rudolph Giuliani faces off with Hillary Clinton for the senate seat
being vacated by Senator Moynihan, the Manhattan lodging market is anticipated
to receive some residual
effects. Demand for hotel rooms in the City will continue to increase
partially aided by fund raisers and other election activities.
10. High - Tech Amenities Become the
Norm:
Hotels are focusing on making all their guest rooms high-speed Internet
accessible. E&Y�s recent survey of numerous upscale hotels within Manhattan
indicated that amenities such as fax machines, VCRs, cordless telephones,
Web TV, computers and compact disc players are becoming more prevalent,
either as standard guest room equipment or available through the concierge.
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In 1903, the St. Regis pioneered central air
conditioning with individual
in-room controls. Upon opening in 1907, the
Plaza featured electric clocks
and private telephones in every room.
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20th
Century
Manhattan Milestones
Most Influential Individuals:
Ian Schrager / John Jacob Astor
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Most Prominent Hotel Developments:
Waldorf=Astoria / Marriott Marquis
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Greatest Technological Innovation:
The Computer and its Capabilities
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Most Significant Event:
Development of Mass Transportation
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Favorite Hotels:
Four Seasons / The Plaza
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Results are based on a survey of prominent industry
professionals.
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