Destination: LES – Bracing For a Hotel Building Boom

Editor’s note: This story originally appeared in the November issue of The Lo-Down’s print magazine.

Along upper Orchard Street one sparkling fall afternoon last month, young shoppers strolled in stilettos, popping in and out of the tiny, trendy boutiques that seem to multiply overnight lately. The perfume of fresh-cut flowers banked along a new corner bodega wafted down the block, overlaid with the pungent smell of roasted garlic from one of the pizza joints. Shopkeepers hawked leather goods on the sidewalk while workers hammered away inside Mi Casa Es Su Casa, yet another new restaurant opening soon. A woman with a suitcase asked directions to The Hotel on Rivington. A few blocks south, a group of tourists set out from the Tenement Museum for a walking tour of the way things used to be.

This eclectic mix — of the fashionable and the old-fashioned, the outgoing and the up-and-coming — forms a large part of the Lower East Side’s charm and draw. Combined with cheaper real estate prices than most of the rest of Manhattan and easy public transit access to  more tourist-centric parts of the city, the neighborhood’s character helps paint a portrait of a place that developers could envision new hotels succeeding.

And so, envision they have: if and when 13 new hotels now in the pipeline come online, the Lower East Side’s nearly 1,000 hotel rooms will nearly triple over the next couple of years.  Four new properties are scheduled to open their doors any day now, boosting the existing inventory by about 30 percent. Six projects in various stages of construction – four of them in a two-block radius along upper Orchard Street – will add another 900 or so rooms, most by the end of 2014. Three more-recent proposals await regulatory approval: a 130-room boutique hotel in the landmarked Jarmulowsky Bank building on Canal Street, a hotel/condo combination  building on Chrystie Street estimated at 376 rooms, and a Broome Street project whose room count is not yet determined.

“This is a sign that the world outside the neighborhood is interested in what the Lower East Side has to offer,” said Jonathan Miller of Miller Samuel Inc., a prominent Manhattan real estate appraisal and consulting firm. “And the math works because hotel occupancy rates are at an all-time high.”

Since some highly visible local hotel projects stalled for years in the wake of the real estate crisis, and so many new proposals have made recent headlines , it may seem a mystery that any entrepreneur would gamble on a market that appears too difficult or too flooded – or both. But industry statistics like occupancy, average daily room rates and supply and demand say otherwise, and the projects keep coming.

“The absolute numbers that New York City is producing are unprecedented,” said Jan Freitag, a senior vice president with Smith Travel Research, which tracks hospitality trends and provides market data to hotel developers worldwide. “Manhattan is an outlier; everyone wants to be there. Manhattan is hot.”

The neighborhood’s hotel building boom is part of a larger trend playing out all over the city, mostly in Manhattan but also expanding into the other boroughs, as New York City’s tourism continues to climb to an all-time high and demand for lodging regularly outstrips supply, even as supply continues to grow.

New York City hosted more than 50 million visitors in 2011, driven in part by the mayor’s heavy emphasis on tourism.  By the end of 2014, the city will have more than 100,000 hotel rooms, with 40 percent of them being built since 2006, according to the city’s tourism agency, NYC and Company.

A Smith Travel Research report shows that the number of hotels in downtown Manhattan (all neighborhoods south of 23rd Street) grew by 48 percent in the five-year period ending in August 2012, compared with only 28 percent growth Manhattan-wide in the same period.

Overall, the number-crunching shows accelerating activity in less traditionally “tourist” neighborhoods in Manhattan, including the Lower East Side, as well as in the other four boroughs, which accounted for 40 percent of all new hotels between 2006 and 2011, according to NYC and Company.  “People looking to site new hotels look at the places where hotels are not,” Freitag said. “In a market like New York, all the places you would naturally put a hotel are taken, so you look for other opportunities.”

New hotels in “emerging markets” like the LES offer travelers unique experiences and a range of attractive options, Freitag said.

“Prices will be lower. The feel of the hotels will be different, which is a factor for a lot of leisure travelers, in particular. A lot of people who have come to Manhattan before don’t necessarily want a big brand box.”

Lower East Side Hotel Map

The LES’s current hotels offer a combination of small independent boutique-style properties, such as Orchard Street’s Blue Moon Hotel; small luxury chains, like Allen Street’s Thompson LES; and franchises of larger national economy chains, such as Comfort Inn, which has two local properties, one near the Manhattan Bridge and one on Ludlow Street.

National hoteliers entering emerging markets gamble that brand loyalty will persuade their built-in customer base to try new locales when traveling. All four of the new hotels opening in the next few months are chains: Wyndham Garden, Holiday Inn, Howard Johnson and Fairfield Inn.

Familiarity was the deciding factor for tourist Jill Christensen, who came from Utah for a week in October. She and her husband planned to see Barbra Streisand uptown and had a list of other sights to hit, including the Lower East Side’s Tenement Museum. After searching online, the couple decided to stay just across the Williamsburg Bridge in Brooklyn because they found a good rate at a Holiday Inn Express, which they knew from back home.

“Where we live, people are kind of afraid of getting around in New York City,” Christensen said. “But it’s really easy to get around, and it was less expensive to stay in Brooklyn.”

Considering that most of the Lower East Side’s 14 current hotels have appeared gradually over the last decade, the recent building rush represents a significant change in the landscape, just as a massive redevelopment project gets under way. The Seward Park redevelopment plan, approved by the City Council on Oct. 11, will remake 1.7 million square feet into 1,000 new apartments and a large swath of new commercial, retail and public spaces, possibly including yet another hotel.

“The hotel numbers say a lot about the Lower East Side as a destination,” said Miller. “You address a niche that’s eclectic, with an eclectic group of sights in the neighborhood. That’s the charm, and that’s a sought-after thing.”  Because visiting diners, shoppers and gallery-goers support existing businesses, the neighborhood as a whole benefits economically, Miller said.  “Basically, you’re bringing more wallets into the market, and it helps everybody when you shower the market with dollars,” he said.

That prognosis resonated with Bob Zuckerman, the executive director of the Lower East Side Business Improvement District. “The hotels we have certainly add to our foot traffic, and we always want to add more foot traffic, because our small businesses need it,” Zuckerman said, noting that the LES lacks the pedestrian draws that many other neighborhoods enjoy, such as universities, hospitals and large office buildings.  “The Lower East Side has really grown into a legitimate tourist destination,” Zuckerman said, citing attractions such as the Tenement Museum, the New Museum, a growing collection of art galleries and destination dining spots, as well as iconic establishments like Katz’s and Russ and Daughters.  While he’s not worried that the proliferation of hotels will turn the LES into a Times-Square-like tourist zone, Zuckerman notes it will mean big change for the neighborhood. He’s advocating for a counterbalance of other types of commercial development, such as office buildings.  “We will at some point reach a saturation point with hotels,” he said.

In the long run, the presence of hotels and their accompanying tourism dollars not only supports current businesses but also encourages a wider variety of new retail. In turn, that lays the groundwork to attract higher-end residential development, Miller said.  “In many ways, this is a shortcut to drawing in new residential services,” he said. “It’s the cycle of life for a neighborhood; you certainly don’t want the opposite.”

In a general way, that cycle ultimately leads, or course, to gentrification, bringing higher housing costs that price lower-income residents out of the neighborhood.

There are plenty of other drawbacks sprouting from new hotels, some of which are already playing out here.

Rooftop parties and other late-night noise have tormented residents in low-rise tenements surrounding the Thompson LES and the Hotel on Rivington since they opened in 2008 and 2005, respectively.

More recently, the new Wyndham Garden at Bowery and Hester Street was at the center of a legal dispute between the owner of the land and a group of tenants who were displaced from their apartment building next door due to structural problems the tenants alleged stemmed from work at the hotel site.

And along upper Orchard and Ludlow streets, where four large hotel projects began rising into the skyline only to be arrested by the commercial real estate disasters of five years ago, neighboring residents and business owners quickly tired of living in the shadows of enormous concrete hulks. Aesthetics aside, the more serious effect of the stall-out was financial hardship for some business owners who had banked on a consumer pool  that never materialized. The projects in the zone dubbed by some critics as “Hell Square” – 139, 163 and 180 Orchard St., and 180 Ludlow St. – are slated to eventually add a total of 590 rooms to the LES inventory. Though each site has its own particular real estate drama, two are clearly progressing and it seems more likely than ever that the other two are poised to follow suit.

While construction lumbers forward at varying paces in the Orchard/Ludlow corridor, the western end of the LES hosts three of the four nearly complete hotels expected to launch between now and year’s end: the Wyndham Garden, a Howard Johnson at 5 Allen St. and a Fairfield Inn at  95 Henry St. (The fourth is the Holiday Inn at 150 Delancey St.)

At the glass-and-marble Wyndham Garden, which sits on the LES’s border with Little Italy and Chinatown, sales director Shequan Smith talked enthusiastically about his new property one day last month, while workers scrubbed the slate entryway and executives eyed a parade of firefighters in full gear tromping across the shiny lobby, conducting a  final fire inspection.  “We’re ready to rock ’n’ roll,” Smith said.

Hotel officials have put the clash with neighbors behind them, Smith said, asserting that the residents’ beef was not with the hotel itself but with its landlord. Smith noted that the expansive covered outdoor plaza area will be furnished with chairs and tables and free wi-fi for public use, and that his employer made an effort to hire its staff locally, hosting a job fair that drew 500 applicants.

“We have really focused on getting involved in the community and providing support to the community,” he said.  The Wyndham’s 106 rooms, banquet and meeting spaces and rooftop deck with citywide views are being marketed to three target audiences, Smith said: corporate travelers and members of the fashion and entertainment industries. While first-time visitors may choose midtown, the Wyndham is banking on booking customers who come to the city frequently and who want a less-touristy experience in an authentic neighborhood.

“Lower Manhattan — the Lower East Side, SoHo, Chinatown — these are the new hot spots,” he said. “This is the new, trendy, sexy part of the New York.”