Mark Lomanno
President,
Smith Travel Research

Accelerating room night demand trends are propelling the New York hotel market into a period of sustained growth. With stronger demand for rooms during the business travel days of Monday through Thursday augmenting the already strong leisure weekend travel days, occupancy levels in 2004 will be at their highest since 2000.

In 2003, six new hotels entered the Manhattan market, including the 120-room Maritime Hotel, the 182-room La Quinta Inn, the 144-room Hampton Inn Chelsea, the 251-room Mandarin Oriental, the 158-room Sheraton Four Points, and the 203-room Alex. We note that the opening of the La Quinta Inn, Sheraton Four Points, and the Hampton Inn marked the first representation of these three brands in Manhattan. In addition, two hotels reopened in May of 2003. The 561-room Millenium Hilton reopened following comprehensive renovations as a result of the damages caused by the terrorist attacks of September 11, 2001, and the San Carlos reopened following a 15-month renovation and repositioning program. Unlike 2002, where over 80% of new supply was located in the Midtown West and the Downtown areas, openings in 2003 were dispersed throughout Manhattan, specifically in Midtown West, Midtown East, Lower, and Downtown Manhattan. We note that the Helmsley Windsor Hotel and the Regent Wall Street closed in late 2003; both properties are expected to be converted into luxury condominiums. The 188-room Doral Park Avenue closed in November of 2003 to undergo a $19-million renovation and expansion program, including the addition of 17 guestrooms. Upon completion of the project, the property will be repositioned as an upscale boutique hotel and affiliated with Kimpton Hotels. The following table lists some of the significant changes in the Manhattan hotel supply that have occurred in recent years.

As illustrated in the table below, as many as 1,918 rooms, or 13 properties, may enter the Manhattan market through 2006. We note that we have not factored in the Courtyard by Marriott, which is expected to be located at 54th and Broadway, as it was on hold as of the time of our survey. We also note that the 357-room Residence Inn, which is under construction at 39th Street and Sixth Avenue, will be the first branded extended-stay product in Manhattan. The majority of the anticipated new supply represents limited-service hotels. We further note that significant barriers to entry including high construction costs, prohibitive land costs, and a lack of available sites continue to remain key factors when considering construction of lodging facilities in Manhattan. Thus, only the most financially feasible projects are likely to reach fruition. The following table sets forth the number of new rooms that are anticipated to become available through 2006.