The NYC hotel industry is a strong sector. Considering that revenue per room, hotel occupancy, and room rates are all on the rise, investors in NYC hotels within recent years have made a smart decision. Past performances have shown outstanding strength in this area of investment. According to Marc Magazine, managing director for hospitality at the global commercial real estate firm Savills, buyers in 2011 were purchasing NYC lodging properties.
Based on Real Capital Analytics data for January-March 2012, three Manhattan hotels sold for a total of $338.4 million. The current average price per room in New York City hotels is $402,355. The Big Apple's hospitality sector maintains strength. Yet the industry has gone through that feverish pitch stage which always follows a recovery. Consider that the financial breakdown of 2008, led to a bottoming in 2009, and consequently, a recovery during the first months of 2010. Bernard Schwartz, managing director of hotels and lodging assets at Steven Kamali Hospitality, believes that NYC hotel investments during 2011 showed "a summation of the pent-up demand from the recession."
Presently, revenue, room rates, and occupancy are on the increase – even with the consistent rise in the number of guest rooms in New York City. According to PricewaterhouseCoopers, Manhattan hotel occupancy rates increased to 86.6% in the last quarter of 2011 – a rise of 3.7% from the same time in the previous 12 months.
Even though the first quarter is traditionally a slow time of year, NYC's Economic Development Corporation notes that Manhattan occupancy rates for January-March 2012 was 71.7% - a 7% increase over the same time in 2011. In fact, the consistent high occupancy rates have allowed Manhattan hotels to increase their nightly room rates. PricewaterhouseCoopers reports that average daily rates rose by 2.4% to $315.73 between the last quarters of 2010 and 2011.
During the past two years, hotel investors witnessed historically low capitalization rates measuring the rate of return on a real estate investment. Buyers were willing to pay more for properties with less income. Investors hope for a rise in revenues.
The sale of the Union Square W Hotel with its specific debt issues illustrates that point. When its Dubai-based owner went into foreclosure, the property went to auction. Despite the hotel’s debt, several investors put in a bid. These parties were willing to accept that cap rate of a very low number. The investors had faith in the future of the property and viewed it as a "once-in-a-cycle opportunity." Current NYC hotel prices are going through a “more normalized” stage.
During 2012, New York City hotel construction is expected to continue with almost a dozen properties to come into view by the end of this year. According to PricewaterhouseCoopers, developments include seven properties (900 rooms in total) in Lower Manhattan. An additional 24 hospitality properties are planned for 2013 including Extell Development’s 487-room Hyatt Times Square and the McSam Hotel Group’s Holiday Inn Manhattan Financial District at 99 Washington Street.
The NYC hotel investment sales market is much stronger than anywhere else in the US. Analysts expect big hotel sales (especially deals involving foreign purchasers) to continue in 2013. Sean Hennessy, CEO at Lodging Advisors, a Manhattan-based industry consulting firm, says that various properties might soon hit the market in hopes of attracting attract overseas investment.
In March, the Dubai Investment Group put the 509-room Jumeirah Essex House on Central Park South up for sale. The Wall Street Journal believes that the price could reach an amazing $1 million per room. As well, the Helmsley Park Lane Hotel on Central Park South could go on the market. In 2008, this hotel was up for sale but never changed hands.
During April, the New York Post reported that the Sahara Group, an Indian conglomerate, would purchase the Plaza Hotel for $600 million. The price includes $400 million for the building’s hotel component (almost $1.5 million per room), or in other words, the highest per-key trade in the history of NYC hotels. In March 2012, the Hotel Williamsburg was sold to King & Grove Hotels for $33 million ($520,000 for each guest room.) Several NYC hotels have changed hands in the last 18 months. Regardless of the price, NYC hotels are considered a safe investment for local and international buyers.
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