Even though hotel construction financing is still difficult to obtain, large scale Manhattan hotel development sites continue to be snapped up.
Our office recently closed on 1205-13 and 1215-25 Broadway, located on the northwest corner of Broadway and West 29th Street in the heart of Herald Squarefor $71,900,000 or approximately $290/BSF.
The approximately 25,000 SF combined footprint could yield approximately 250,000 BSF. The buildings were approximately 25% occupied at the time of sale; however all of the remaining leases are expiring within the next two years giving a developer a timely project. The sale was handled by Robert Knakal, John Ciraulo, Craig Waggner and Jonathan Hageman.
The buyer was the The Lam Group. According to their website, they have developed millions of square feet of hotel, shopping mall, residential and office space within the past 10 years. They plan to expand to other major metropolitan areas across the United States adding 1,000 rooms every year for the next 3 years.
This is a bold proclamation considering that few lenders will consider making a hotel construction loan today.
On that note, yesterday I spoke with one experienced developer who told me that he has a 60,000 BSF site in Midtown. He is teamed up with one of the largest boutique hotel operators in the nation. They are in discussions with two of the largest conventional lenders, who have expressed interest. However, these lenders have been extremely cautious insisting on detailed financial information and business plans despite the borrower's long standing track record. As a result, the process has been dragging along.
However, according to Garrett Thelander, head of Massey Knakal's Capital Services Division, while there are fewer institutions that will finance ground-up hotel projects, they do exist. These lenders are active, but they will only lend to experienced developers who bring a significant cash equity stake, meaning at least 40% of the total costs in the project.
Lenders should be comforted by the record 48.8 million visitors who came to NYC last year. According to nyc.gov, in 2000 we only had 36.2 million visitors.
Furthermore, according to PWC's 2Q11 Manhattan Lodging Index figures, the average daily room rate was $272, which was approaching 2008's peak level at just above $300. Meanwhile, due to a new supply of hotel rooms, the occupancy rate did dip slightly to 87.2%; however, Revenue Per Available Room (RevPAR) has still increased 4.8% in 2011.
As of earlier this year, Smith Travel Research reported that there were 40 hotel projects under construction for a total of 6,500 new rooms, of which 40% are in the outer boroughs. According to NYC & Co, there is a total of 86,232 hotel rooms in the City, so these new units will only represent a 7.5% increase to the overall stock. There seems to be plenty of demand for these new rooms, which explains the continued demand for new hotel sites.