Once again, in 2008 Manhattan was the top-performing hotel market in the U.S. in terms of RevPAR. Occupancy remained impressive, in the mid-80% range. However, average rate gains were more modest than in the previous four years because of the heightened economic crisis in the last quarter of 2008. Despite the recent tumultuous economic times and the previous recessions that affected the Manhattan hotel market, all segments and all neighborhoods averaged growth in demand stronger than the growth in supply from 1987 to 2008; these fundamentals highlight the strength of the Manhattan market across the board. As a result of these favorable supply and demand dynamics, average rate grew well above the inflation rate during the historical period reviewed, pushing RevPAR up, and sustaining fairly high values. Considering the current climate, HVS forecasts that the Manhattan market will bottom out in 2011, with RevPAR returning to close to its 2008 peak level by 2013. We expect hotel values in Manhattan to follow a similar trend, reaching their low point in 2010 and returning to the previous peak level in 2013; this scenario assumes that the current recession will not fundamentally change corporate and transient customers' travel patterns over the long term and that financing returns to normal leverage levels.

Dear Friends:

It is a great pleasure to welcome everyone to the 31st Annual New York University International Hospitality Industry Investment Conference.

New York City’s tourism industry makes tremendous contributions to our economic vitality, and last year 47 million people, including nearly 10 million international visitors, traveled to the Big Apple to take advantage of our world-class attractions, restaurants, shops, and events. From the Coney Island Boardwalk to a scenic ride on the Staten Island Ferry, from a stroll in Central Park to the Bronx Zoo or a day at Flushing Meadows, there’s so much to see and do in New York that even many longtime residents still have more of our diverse, exciting neighborhoods yet to explore.

There’s never been a better time to visit the greatest City on earth, and with the help of those gathered here today I know that we can meet our ambitious goal of attracting 50 million visitors per year by 2015. Please accept my best wishes for an enjoyable and productive conference.

This year, both as a nation and as an industry, we face economic times unlike any we’ve experienced before. Here in New York City, we particularly feel the impact of the crisis in the financial service sector, which has historically been a mainstay of our economy. It has been a wake-up call to many on the need to diversify our economy, and a reminder that the travel and tourism industry is essential to our economic well-being; it can continue to provide good jobs and generate critical tax revenues. Despite the downturn in travel, New York City remains the #1 destination for international travelers – visitors who stay longer and spend more. New York City tourism has always been essential to our city’s economic health, but today it has the potential to be a cornerstone for our recovery.

New York City closed 2008 with a record-breaking tourism year, welcoming an estimated 47 million visitors who collectively spent $30 billion. After completing our global expansion and opening our 18th office in Mumbai, India, last Fall, NYC & Company will turn its focus in 2009 to enhancing the image of the City domestically. Promoting the value of a visit to New York City, we will highlight new hotel development, new product, and the multiple anniversaries that take place this year, including the 400th anniversary of the discovery of New York City by the Dutch, the 100th anniversary of the NAACP and the 40th anniversary of the Stonewall Riots. While we anticipate an estimated 5% decline in tourism to the City in ‘09, we are confident we will continue to outperform other cities across the U.S. and lead the nation in hotel occupancy by at least 20 percentage points.

2009 will be remembered as the year of fortitude as New York City hotel professionals confronted transformational shifts in demand and unyielding pressure to cut expenses.

Business and leisure travel behavior has abandoned traditional patterns, shortening the booking cycle to days if not hours, rapidly switching allegiance from destination to destination while redefining a vacation as a want rather than a need.

After a relatively strong start to 2008, the year finished very badly for NYC hotels. During the first 8 months of the year, New York City hotels were able to weather the economic storm that had been brewing since late in 2007, better than most markets. While it was clear that the high-flying days of the past several years were beginning to wane, especially in the luxury segment, hoteliers in the city had been able to continue to grow rate. However, the fall of Lehman Brothers in September of last year seemed to signal a real sea change in hotel performance. That event heralded some fundamental changes in the way corporate America was doing business, especially as it related to travel. No longer does it seem acceptable to stay at high-end properties for business reasons, and even the once taken for granted necessity for company and group meetings has been called into question.

For a city like New York, which has a very high proportion of its hotel supply at the high end of the marketplace, these changes are going to make 2009 an extremely difficult year for the hotel community. The effects can already be seen as through the first quarter of 2009, citywide RevPARs are down over 20 percent. We are hopeful that this level of decline will moderate as the year goes on; otherwise, 2009 will be remembered as very dark days for hotels in the city.

While this modified behavior is almost certain to change again over time, especially as the economy and specifically the health of the financial community improves and businesses return to profitability, a recovery is liable to be several years away. In the meantime, hoteliers should do all they possibly can to preserve room rate integrity because as was clearly demonstrated in 2001 and 2002, it can take many years to recover from extended periods of room rate discounting.