News
HOSPITALITY HEAT WAVE
July 28, 2011
| Hoteliers may want a bite of the Big Apple—recently dubbed the top hotel money magnet by Cushman & Wakefield—but the other metros aren’t too far behind, we learned yesterday at Bisnow’s New York Hotel Investment Summit at The Roosevelt. |
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| The nation’s capital is inching up behind New York, with Chicago,Boston, Dallas, San Francisco, Los Angeles, and Seattle playing follow the leader, says Prudential Douglas Elliman retail queen Faith Hope Consolo, center, who joined moderator Sheri Chromow, partner of Katten Muchin Rosenman; Avenue Capital senior associate Marc Weil; Morgans Hotel Group SVP of development Eric Bass; and FelCor Lodging Trust SVP of development Erik Nylen. |
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| But now it’s becoming a challenge to compete in the primary markets, points out Marc, whose company worked on deals “off the beaten path” in Georgia and Hawaii. A lot of folks thought hotel assets would come to market two or three years ago, but now vintage funds (apparently unsatisfied with buying old cars and '70s clothes) are bidding up deals past what some investors can afford. |
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| Move over, the “high streets” of Madison and Park—neighborhoods once less desirable are now getting action. Faith says retailers and Euros are mad for the Meatpacking District, where niche hotels are sprouting up faster than foliage on the High Line. Other spots to watch: Park Avenue South, lower Fifth Avenue, Chelsea, and the East Village (to which she once asked, “Are you kidding?”). It’s not only about hotels’ locations, but the buzz of their restaurants, shops, and rooftops. Now visitors are considering boutique hotels over $800/night stays at The Peninsula or The Pierre. But when's development enough? “You can never have too many hotels,” she says of Manhattan. “If you build it, they will come.” (She's talking about tourists, not dead baseball players, who'd probably hurt your diamond rating.) But the outer boroughs? Not so much. |
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| Mondrian SoHo is proof, Eric adds. “People had their doubts, but now you can’t even walk on the sidewalk. We’re doing tremendously well.” Morgans is now working on deals in the Meatpacking District and near City Hall. But building new can take a hard hit on the wallet:$7,000 to $8,000/key as construction costs creep back up, he says. Conversions bring that down a bit, but rebranding is the most cost-effective option at $150 to $200/SF. However, this shouldn’t rain on the luxury hotel parade—Faith expects one at the Drake site on Park. |
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| To put those dollars in perspective: FelCor invested $140M in two of Morgans’ Manhattan hotels, The Royalton and Morgans (in which Morgans will still play a role under a long-term management agreement). That’s below $500/key, Erik says, roughly 60% of the replacement cost. Bonus: little renovation risk, since The Royalton underwent a $20.2M makeover in ’07, and Morgans a $10.3M upgrade in ’08. FelCor also purchased Boston’s Copley Plaza Hotel for $250/key. |
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| Where would you find our panelists spending a night? Erik says The Royalton is his new fave FelCor purchase. Outside of the Morgans portfolio, Eric gives The Palace his thumbs up. It’s the Four Seasons for both Marc and Faith (whose other favorite is the St. Regis), while Sheri escapes Manhattan’s hustle and bustle at Napa Valley’s Auberge du Soleil. |
