The New York Observer, March 12, 2001

By James Verini

At Olives on a recent Friday evening, getting a table for 7 p.m. or any other hour that night — or the next, for that matter — was out of the question. Todd English’s restaurant, in the new W Hotel on Union Square, was booked solid. In fact, it was all one could do to get a beer at the adjoining bar, packed as its velvet couches were. Later, at Rande Gerber’s Underbar downstairs, it would be even harder.

Across the lobby at the reservations desk, however, booking a room for the night was no problem — a $1,000-a-night duplex suite was available, as were a standard $299 room and many others.

The situation was similar uptown at the Essex House. The idea of a table for two at Alain Ducasse’s French-fusion wallet-cleaner was laughable, but virtually any type of room or suite was open upstairs. The same was true at the Tribeca Grand, the Carlyle, the Four Seasons, the Ritz-Carlton, the Pierre and the Shoreham.

True, the first three months of the year are traditionally the least busy for the city’s $6 billion hospitality industry. But the surfeit of available rooms on a Friday night had to do with more than just the time of year. The fact is that the city’s hotels are starting to get squeezed. A boom in hotel building, prohibitive costs (the average rate of a room in the city rose last year to about $250 per night) and, most importantly, a slowing economy are combining to drive down hotels’ occupancy rates for the first time since 1992 — a fact that has New York’s premiere hoteliers, who have lately grown accustomed to persistently rising demand and profits, very nervous.

“I wouldn’t want to be opening a boutique hotel in New York right now,” said Emanuel Stern, the man behind the 203-room Tribeca Grand and the 365-room Soho Grand. Mr. Stern said that January and February occupancy rates for both his hotels were down 7 to 8 percent from 2000. “And I’m expecting to lose more,” he said.

The decline first became noticeable in the fourth quarter of last year, according to the polling and analysis firm PKF Consulting, which supplies data to New York City’s visitors bureau, NYC & Company. Occupancy rates for October and November, when vacant luxury-hotel rooms are normally few and far between in the city, were down 3 to 4 percent.

Nell Barrett, senior vice president of communications at NYC & Company, said that last year’s election fiasco had an effect on consumer confidence. “The psyche of the nation in the fourth quarter was nervous … But we are optimistic. We think 2001 will overall be a strong year.”

While rates jumped back up slightly in December, conversations with general managers and owners indicate that occupancy is on a slide again at many hotels.

Raymond Bickson, general manager of the Mark on Madison Avenue, said that business for the first quarter of this year will be flat compared to the first quarter of 2000 — something he hasn’t seen since nearly a decade ago, when the city’s hotel industry was at a low point. “Everyone’s walking on eggshells, waiting to see what will happen with the stock market,” he said. Joseph Kaminski, general manager of the Hotel Delmonico on Park Avenue, said that occupancy rates were down as much as 10 percent in January and February at his hotel. “And March doesn’t look much better,” he said.

Establishments like the Tribeca Grand, where occupancy has been very high — above 90 percent — sit on the upper end of a downward trend that, by the end of this year, will affect most large hotels, according to John Fox, a senior vice president at PKF. Mr. Fox estimates that occupancy rates for New York City will average out to about 80 percent this year — down from 84 percent in 2000, an all-time high.

Mr. Fox attributes the decline directly to the weakening economy. “The increasing number of hotel rooms in New York is a factor,” he said, “but not a big one.”

NYC & Company’s Ms. Barrett disagreed. “In 2000, we had more than 3,200 new hotel rooms put on the market. That’s a huge influx of availability.”

2,000 More Rooms in 2001

In the last year alone, large luxury hotels like Ian Schrager’s Hudson Hotel, at 356 West 58th Street, the Regent Wall Street and the W Union Square, at Park Avenue South and 17th Street, have opened, while a cottage industry of mid-sized and small, one-of-a-kind boutique hotels, from the Tribeca Grand to the Shoreham, has sprouted up around them.

And there is only more of the same to come: By the end of the year, the Ritz-Carlton’s Battery Park City branch, the Bryant Park, 60 Thompson and the Chambers, on West 56th Street, will all have opened. At the end of last year, there were about 67,000 hotels rooms in New York, compared to 58,000 in 1993. By the end of this year, there will be 2,000 more.

At the same time, old standbys like the Plaza, the Peninsula, the Algonquin and the Essex House have undertaken extensive renovations or recruited well-known chefs to open up restaurants in their lobbies in order to keep pace with their younger competitors.

In this climate, the luxury-hotel business in New York is as much about glamour as it is about margins, as driven by personalities as it is by profits. And these days, it’s New Yorkers who pack hotels to party. The biggest names in the business — many of them no less famous than their desired patrons — are designing their establishments accordingly.

Take the Hudson, for instance. With the radiant Hudson Bar, the sprawling Library Bar and the Beowulf-meets-Joseph-Cornell Cafeteria (where no preference in reservations is given to actual guests in the hotel), the hotel’s lobby level is a veritable labyrinth of lifestyle design. The remaining 24 floors, meanwhile, seem a dank afterthought; the rooms have a claustrophobic feel and the service is negligible. Or consider the Tribeca Grand, at 2 Avenue of the Americas, where the rooms, a few inches larger than the Hudson’s, face onto the echo chamber of an atrium, making ear plugs a necessity if you want to turn in before Miramax does. (For your trouble, you do get a lot of free Kiehl’s soap.)

However, with the Internet bubble decidedly burst, Wall Street has had to shed its tolerance for glittering veneers that cover questionable bottom lines. The stock market doesn’t care if Ben Stiller is playing pool and drinking apple martinis at your establishment, it seems: The Standard & Poor’s Hotel-Motel Index has slid 10 percent since January, and analysts at UBS Warburg, Bear Stearns & Company and Deutsche Banc Alex. Brown last week downgraded ratings on everything from Marriott to Hilton to Starwood, parent company of the W chain.

Faced with the prospect of shrinking occupancy rates and stock prices, New York’s hospitality industry is taking action — or, at least, holding panel luncheons to discuss taking action. On March 1, members of the Hotel Sales and Marketing Association assembled for several hours in the banquet room of the Sofitel on West 44th Street. The panel topic was “The Softening of the Hotel Market in 2001.”

George Kurth, director of reservations and revenue management for Manhattan East Suite Hotels, which owns 10 hotels in New York City, was present. According to him, the atmosphere in the room was one of well-disguised alarm. “Everybody wanted to put a brave face on,” said Mr. Kurth, adding that the numbers circulating around the luncheon were even more distressing than the occupancy-rate statistics compiled by PKF: Average revenue per room, which is calculated by measuring occupancy rates against room rates, declined 6.8 percent in January and 7.4 percent in February, according to Mr. Kurth.

Mr. Kurth said that his company, whose properties include the Benjamin, at 50th Street and Lexington Avenue, and the Surrey, at 76th Street and Fifth Avenue, first began noticing a decline in demand for advance bookings as early as last September. In response, said Mr. Kurth, they have stepped up advertising and promotions and slowed the pace of increases in room rates, which most years are marked up considerably in the fourth quarter. He said that the drop-off has been most apparent in guests coming to town for business, particularly retail executives.

Howard Givner, president of Paint the Town Red, a special-events company, agreed. According to Mr. Givner, conferences, conventions, parties and banquet revenues may drop as much as 10 to 15 percent this year.

Fewer Puffy Parties?

It is not clear how deeply this will affect New York’s boutique community. Takis Anoussis, general manager of the 176-room Shoreham hotel at 33 East 55th Street, explained that, by virtue of their size and eclectic image, New York’s boutique hotels rely far less on groups and corporate clients. Mr. Anoussis said that the Shoreham has seen only a slight decline in demand this year.

“For better or worse, we’re tiny, so we don’t feel that,” said Andre Balazs, owner of the Mercer Hotel in Soho. “I can’t overemphasize the difference between me talking about 75 rooms and Ian Schrager talking about 900 rooms. You have to get three 747’s in every single night to fill the place. I mean the volume issues are astronomical, as opposed to someone who loves [the particular corner where the Mercer is located] and Room No. 602. That’s the one they’ve got to have, and they don’t notice the difference of $100 dollars here or there.”

Emanuel Stern said that his “core clientele — fashion, media, design, entertainment, advertising — is still there. Maybe they’re coming into the city two times a month instead of three.” But “unaffiliated customer business” at his Tribeca and Soho hotels has slowed down, Mr. Stern said.

To make up for it, Mr. Stern has taken a cue from his more middle-brow compatriots, offering such promotions as the “Sex in the City” weekend package: Starting at $299 per night, you get a room, two complimentary drinks at the bar, a free robe, free access to the video library and as much bath and massage oil as you can handle.

While demand for rooms at the Tribeca Grand and the Soho Grand may remain relatively high even in a citywide slump, Peter Klein, director of special events and catering for both hotels, told The Observerthat reduced budgets are making themselves felt in subtle ways in his end of the business. Over the last year or so, hotels have become the venue of choice for parties — just in February, there were Jean (Puffy) Combs’ Valentine’s Day rager at the W and Molly Shannon’s Saturday Night Live farewell bash and Chelsea Clinton’s 21st-birthday party at the Hudson. But the champagne may not be flowing as freely as it was just months ago. “People are shopping,” said Mr. Klein. “For weddings and birthday parties, they’re looking for value … They’re more conservative in their selection of floral decor, and they want to negotiate room rates when that’s applicable.”

Catering is taking a hit, too, said Mr. Klein. “They might forego a fourth or a fifth course. If you were doing a four-course meal, and one course was pasta and the next lobster … it becomes a pasta with seafood sauce.”

Mr. Klein has also noticed “a change of tone” in party-throwers’ choices: “To see mashed potatoes and macaroni and cheese is not unheard of.”