The 452-room Times Square Edition was facing a foreclosure action by creditors when the pandemic hit. The property opened last year.
Photo: Lev Radin/Zuma PressThe pandemic that hit New York’s hotel industry harder than any other U.S. lodging market is expected to leave thousands of rooms there closed permanently, as the city starts to reopen after months of lockdown.
New York hotels went into the coronavirus crisis suffering from falling occupancy and room rates, mostly because of a glut of new development. Now travel restrictions and a tattered economy brought about by Covid-19, the disease caused by the new virus, have aggravated an already-bad situation.
As many as 25,000 rooms, or 20% of New York’s total, might not reopen, analysts and hotel owners say. That is equivalent to the entire size of hotel markets in Louisville, Ky., or Jacksonville, Fla.
“Covid…was the final nail in the coffin,” for these New York properties, said Lukas Hartwich, an analyst with Green Street Advisors who follows the lodging industry.
The dire mood has been lifting a little bit recently. More hotels are stirring to life as New York last week started the first phase of its reopening, after a lockdown that lasted since the middle of March. The Millennium Times Square reopened on June 1, while the Hilton Midtown is scheduled to open July 22.
New York’s occupancy rate was 47.1% for the week that ended June 6, according to data tracker STR. That is well down from the 90% level for the same period in 2019, but up from the low of 19.6% in the week that ended April 4.
But a full recovery could take years because the city is so dependent on international travelers and tourists drawn to New York’s attractions. Some theater-industry officials are saying that Broadway might remain dark until next year, while business and group travel are expected to be slower to recover.
“If you only have the empty canyons of Park Avenue, that’s probably not enough of a draw,” said Jan Freitag, a senior vice president of STR.
Marriott said last month that it had notified employees that it expected the Times Square Edition to close in August.
Photo: Richard B. Levine/Zuma PressOne high-profile property on the path to closure: the Times Square Edition, opened last year by a partnership that included Marriott International Inc., Maefield Development and Ian Schrager, of Studio 54 fame. Marriott said last month that it had notified employees that it expected the hotel to close in August.
The 452-room lodging, which was part of a mixed-use $2 billion development, ran into financial problems soon after it opened and was facing a foreclosure action by creditors when the pandemic hit. Talks among the parties are continuing and there is still hope Marriott might change its mind and keep managing the hotel, people familiar with the talks said last week.
Another hotel that might not reopen is the Blakely New York, according to Richard Born, who co-owns the property and 27 other independent properties in Manhattan and Brooklyn. The 17-story hotel, which opened in 2004, had filed papers with the New York Labor Department around the beginning of the year to warn that it might close.
Mr. Born said in an interview that New York’s hotel market might not recover from Covid-19 until 2024. “You layer that onto a market that already was in stress and people will start scratching their heads and start thinking about what else can I do with my real estate,” he said.
Mr. Born said his company, BD Hotels LLC, is planning to reopen all its other hotels.
Financial problems have been building in the New York hotel industry as supply has soared. The city has added 15,000 rooms since 2015 and has 4,000 in the pipeline to be delivered this year and 6,000 next year, according to SunTrust Robinson Humphrey.
Many New York hotel owners took on too much debt, which has been particularly hard to pay in recent months. By early June, loans on 17 New York hotels—which were converted into commercial mortgage-backed securities when they were made—had been transferred to what are known as special servicers, according to data firm Trepp LLC.
Such a move occurs when the loan has defaulted, is in delinquency or there is some other reason to think it won’t perform. Only five loans were in that category in March, Trepp said.
Many of the hotels that won’t reopen likely will be converted into other uses, such as rental apartments or office space. The reduced supply would likely benefit the hotel owners who survive.
“A shrinking market would be a great backdrop for finding a bottom and seeing some nice growth from that point on,” said Mr. Hartwich of Green Street.
Some New York hotels stayed open throughout the pandemic renting rooms to medical workers, construction employees who continued working, consultants on long-term stays, and to the city for the homeless.
Revenue per available room, a common metric in the hotel industry, was down to $57.77 for the week ended June 6, a startlingly low number in what was one of the country’s most expensive hotel markets. It was $210.59 for the same week last year. The average daily rate fell to $122.73, compared with $278.86 a year earlier, STR said.
Many hotels that continue operating are facing financial pressure. The Hilton Times Square is expected to suffer a loss between $6 million and $8 million this year, and might require the appointment of a receiver, according to its owner, Sunstone Hotel Investors Inc.
Still, Sunstone Chief Executive Bryan Giglia said in an email last week, the hotel “remains open serving its guests.”
Write to Peter Grant at peter.grant@wsj.com
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