‘Ripe For A Reset’: With NYC Closed For Business, Hotels Try To Plot Their Future

Demand for New York hotels — like so many of the city’s defining industries — evaporated overnight when the coronavirus made landfall in the city. Now, operators are trying to shepherd their businesses toward a new reality with little to guide them.

Though room rates had been sluggish for some time, floods of tourists and business travelers had kept hotels brimming with guests and occupancy levels high. But with the city now all but closed for business for nearly two months, those guests are nowhere to be seen.

Some hoteliers are beginning to open their booking windows and beginning to see glimmers of interest from guests, sources said — but the situation is fluid and impossible to predict. One thing is certain, people said in interviews: There are many hotels that will never reopen and scores of rooms in planning stages that may be scrapped entirely.

“New York in general had significant oversupply and a challenging operating infrastructure,” said Allie Hope, chief development officer for Virgin Hotels, which is building a 460-room hotel in Times Square. “I think it was ripe for a reset.”

Some hotels will never return and will be converted to different uses, she said — although Virgin plans to go forward on its upcoming project. Those that do come back will have to deploy their lessons learned from the crisis in terms of design, cleaning and service protocols.

“Not all will come back online, it’s deal by deal,” she said. “It’s a function of the hotel lending environment.”

As of the week ending May 9, hotel occupancy in the New York metropolitan area was at just below 44%, according to hospitality data firm STR — a figure that normally sits well above 80%. Revenue per available room, known as RevPAR, the industry's leading performance metric, was just short of $54, which is down nearly 78% from the same week in 2019.

“This is 9/11 and 2009,” STR Senior Vice President Jan Freitag said. “It’s a sharp decline and then a very long, elongated recession after that.”

The downward trajectory, however, is turning around. At its worst, hotel occupancy was almost at 15% in the week ending March 28, Freitag said. The whole country was at its lowest occupancy point two weeks earlier. 

The city has paid hotels millions of dollars to take on homeless people and those exposed to the virus, but that's nowhere near enough demand to help alleviate what the Hotel Association of New York City CEO Vijay Dandapani has described as a “calamity.”

GFI Hospitality President Joel Rosen said the company has the booking window open from June for its locations, and is seeing reservations for the third and fourth quarters of the year. The company owns ACE Hotels in New York, the Beekman in Manhattan's Financial District and the James in NoMad, all of which are temporarily closed. The company’s Crowne Plaza near John F. Kennedy International Airport is operating at a reduced capacity, he said.

“We’ve been engaging with our key clients throughout our process,” he said. “April and May cancellations have been moved into the later part of the year.”

Rosen said the situation is fluid, and the firm will be watching for government guidelines around occupancy and social distancing.

“I don’t think we will open and and we will be 80% occupancy day one, we’ll be ramping up gradually,” he said. “It’s in flux … [but] we can see some light at the end of the tunnel here.”

Some markets around the country that have lifted stay-at-home orders have begun to see a bigger uptick in occupancy, STR’s figures indicate. Freitag said the first group to return to hotels will be those who can drive to the city, the second will be corporate travel and the last will be group travel.

That final group, he said, could be the most perplexing.

“We don’t know what a group meeting in a 6-foot world looks like," Freitag said.

And while other markets may act as something of a guide to New York City hoteliers, the the city is far bigger and more reliant than any other in the country. New York City, which pulled in some 67 million tourists last year, could face quite an uphill climb luring that particular group back.

The epicenter of the virus right now, there have been more than 15,000 confirmed deaths as a result of the virus, according to city figures released Thursday. Though a few regions in the state will be able to begin restarting on Friday as part of Gov. Andrew Cuomo’s phased, regional reopening plan, New York City is in a different place altogether. This week, Mayor Bill de Blasio said the city will remain closed until into June.

Regardless of city mandates, the fate of hotels rests largely on its magnets drawing those from other corners of the world. On Tuesday, Broadway League announced that all of its theaters will be closed until Labor Day — at the earliest. Many institutions of the bar and restaurant scene have closed permanently, and many more do not have a clear path toward a safe, economically viable reopening. 

Technology giants, banks and media firms are all planning to work from home for months at least, likely putting a pin on major corporate travel to many of their Manhattan headquarters.

Still, Pod Hotels is accepting bookings starting in July at its four New York City locations. Pod Head of Acquisitions & Development Rani Gharbie said he is “cautiously optimistic” there will be enough occupancy in July and August to reopen and bring back furloughed staff at some level.

He is banking that younger people — Pod’s target market — will start traveling first.

“Fifty or 60% of our guests are below 35 years old, and if we say leisure is going to pick up first, there is no reason for us not to be at the forefront of the recovery,” he said.

Part of that will rely on each hotel’s dedication to cleanliness and distancing. That could mean staff dressed in protective gear, he said, or maybe filling every second room, all of which Pod Hotels is discussing.

Pod had been planning a major expansion, and Gharbie said this crisis hasn’t changed its growth plans, although it has altered how it aims to get there.

“We haven’t diverted from the big picture … We always said we would get to 50 [locations] in the next five to 10 years,” he said. “While we were focused on ground-up, now it’s going to be mix of ground-up and conversion.”

Right now, the company has six locations in total. 

There are more than 100,000 rooms in the New York City hotel market right now, per STR, roughly 14,600 rooms under construction and 8,200 more in various stages of planning.

“The reality is, the hotel market was in a tough spot before this,” Newmark Knight Frank co-Head of Lodging Adam Etra said.

He believes that thousands of rooms in the current pipeline will never open, and thousands of existing rooms will go dark permanently.

“I don’t think people realize there is tremendous costs of reopening,” Etra said. "There are now many situations where the value [of a hotel] sits somewhere in the debt as opposed to equity. What you will see is more lenders taking back assets or selling their debt positions.”