Funding for New Hotels Dry in Manhattan; National Lodging Forecast Turns Sunny
By Glen Thompson Globe St.
Last updated: Jan 13, 2002 *09:20AM

NEW YORK CITY-Funding for new hotel construction in Manhattan is virtually nonexistent, according to a lodging industry expert at Cushman and Wakefield. And while that may sound like yet another sign of a failing economy, analyst Daniel H. Lesser sees the situation as a positive indicator for the future health of the New York hotel market.
"It's nearly impossible to find financing for new hotel construction at this point, "Lesser, a senior director with C&W's Hospitality Industry Group tells GlobeSt.com." And that's a good thing." Lesser contends that new hotels coming into the market--the Ritz Carlton New York, Battery Park opened last Monday and the W New York-Times Square held a soft opening two weeks ago--need a honeymoon period to establish themselves. "Some time needs to go by for these assets to get absorbed into the marketplace, because when the economy comes back [the local lodging industry] is going to be pretty strong."

Lesser's observations reflect those of real estate analysts in every major sector who say that moderate development in the late 90s prevented a repeat of the steep declines that took occurred a decade ago, when a perfect storm of overbuilding and recession decimated the industry.

On a national level, Lesser says hotel investments are highly sought after. "While the perception is that hotels have lost value during the recent past, there is a great deal of investor interest, and this is anticipated to somewhat negate the impact the tragic events of Sept. 11 and the recession have had," Lesser says.

Pointing to recent hotel transactions such as Donald Trump's purchase of the Delmonico Hotel here for $115 million and Blackstone Group's acquisition of the Homestead Studio Suites chain for roughly $740 million, Lesser says, "Transactions such as these by sophisticated hotel investors illustrate there is interest and perceived long-term upside in hotels.

Mark Gordon, principal and managing director at Manhattan-based investment bank Sonnenblick-Goldman, also cites the Delmonico purchase as a harbinger of good things to come. "We're seeing the hotel market come back in New York and on a national level," Gordon tells GlobeSt.com. He adds that this year, "hotels will probably perform on a basis similar to that of 1998 and 1999."

Going forward, Lesser expects occupancy and room rates to be flat or slightly down this year. Investors, he says, anticipate the hotel industry to recover in 2003. "But it depends on what happens in the economy. Clearly, the way the economy goes, the hotel market goes."

As to when the hoped-for economic upswing will take place, "The general consensus is that the second half of this year we should be well under way with the recovery, barring any further attacks on US soil," Lesser says.