Lodging sector backs conversions

Contrary to popular wisdom, major hotel operators do not want to put an end to residential conversions taking place in New York. Speaking at the Greater New York Construction User Council's seminar on April 13, several hotel players expressed the view that demand is the best guide to how many hotels there should be in the city at any given time.

"You don't want the market to be driven by artificial forces," said Karen E. Rubin, senior vice president of development, feasibility and investment analysis with Starwood Hotels and Resorts. "The market will always right itself."

James Erlacher, senior vice president of lodging development with Marriott International, Inc., also noted that it has become much easier to fund hotel developments if they include a residential section. According to him, Marriott wouldn't be able to build anything unless residential was also part of the equation.

"It is not possible to finance a luxury hotel without a residential component," he said.

On the one hand, Erlacher is pleased that this has limited the number of hotel properties going up in New York right now. On the other, he fears that at one point it might become impossible to build a hotel at all.

"You feel the more you allow this, the more the market becomes obsolete," he said.

One of the solutions that hotel operators are trying out now involves condo hotels, properties that contain units that can be purchased and occupied by their owners for several weeks or months out of the year and then rented out as regular hotel rooms when they are not in use. Starwood Hotels is currently working on such a project in Florida and The Pomerante Group is waiting for approvals to build a condo hotel on the Lower East. Side.

"We feel that this is the next place to go," explained Stephen C. Brandman, chief operating officer and partner of The Pomerante Group/Thompson Hotels and Cromwell Hotels. "From the initial interest, there's great [demand] for that. The real estate market is ripe for people who want to come here for a month at a time and then let the hotel rent it for the rest of the year."

According to Erlacher, Marriott has been considering developing condo hotels as well, but the company is concerned about branding. Marriott customers expect a certain level of service when they stay at Marriott hotels; because the condo component of the development would be serviced by an outside firm, they might be dissatisfied with what they will get for their money.

"The condo hotel is a huge trend at the moment, but it poses some very sharp operational concerns," agreed Rubin. "We're also concerned with brand and inventory. And I wonder if this is something that will peter off when the interest rates change?"

The panelists also spoke about their plans to build new properties in the New York region. In addition to Brandman's Lower East Side project, Starwood is currently building a hotel in Hoboken and Marriott is looking at more possibilities in the outer boroughs in the hope of duplicating its success with the Brooklyn Marriott.

"We believe that we need more product in this market," Erlacher noted. "A lot of smaller, independent hotels have success with pure boutique concepts. We see that as a very lucrative area of the hotel industry. In New York, initially we see two or three properties [like that]. Over the years, Marriott has become predictable. We want to go beyond that, we want to get into the niche market."

COPYRIGHT 2005 Hagedorn Publication
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