NEW YORK—Given the increase in demand from customers, including meeting and event planners who are one of their main business generators, three of New York’s largest convention hotels are in the midst of major capital expenditure programs. Combined, the 2,000-room New York Marriott Marquis, the 1,080-room Sheraton New York Hotel & Towers and the 1,301-room Grand Hyatt New York are investing an estimated $319 million to upgrade their facilities and position themselves competitively as the group market continues to strengthen. Together, the three offer 215,000 square feet of meeting and event space.
Both the Marriott Marquis and the Sheraton are owned by the Bethesda, MD-based REIT, Host Hotels & Resorts. Affiliates of Chicago-based Hyatt Hotels Corp. own the Grand Hyatt.
At the heart of the Marriott Marquis renovation is a new, high-tech, 29,000-square foot Broadway Ballroom; a reinvented lobby, including two signature restaurants and lounges; and newly designed guestrooms. The work has nearly all been completed. Work on the last of the guestrooms is expected to be finished in the spring.
Upgrades at the Sheraton have proceeded in two phases. In the first phase, already completed, a Cisco teleconferencing facility called a TelePresence Suite was added, most guestrooms and suites were upgraded, and the hotel’s club lounge was redesigned. Remaining guestrooms will be completed in phase two, which is also scheduled for completion next spring.
At the Grand Hyatt, all work was completed this month. The 18,000-square foot Empire Ballroom was redone and a new 4,400-square foot social event space called the Gallery on Lex was added. Other changes to the property include redesigned guestrooms, a refreshed lobby, new restaurant, and the addition of a gourmet grab-and-go outlet called the Market.
Host—with the approval of the in-house design teams at Marriott International and Sheraton’s parent, Starwood Hotels & Resorts Worldwide—and Hyatt hired some of the country’s top interior design firms to develop plans for the redesign and oversee the work. Dallas-based Wilson Associates was charged with completing the Sheraton project, while Washington, DC-based ForrestPerkins was awarded the Marriott Marquis assignment.
Reflecting the scope of the work, Hyatt opted to go with three design firms to reinvent the Grand Hyatt. Locust Valley, NY-based Bentel and Bentel, Dallas-based Looney & Associates and New York-based George Wong Design each handled different components of the project, the goal being to create a variety of first-class design concepts.
Aware of the boost a major renovation can give a property in terms remaining competitive, managers of the three hotels spoke enthusiastically about the extensive work that had been done, especially now that it was completed or at least nearing completion. Michael Stengel, who is New York market general manager for Marriott International, for example, said that the 26-year-old Marriott Marquis felt like a brand new hotel. “It’s a whole new setting. Guests are thrilled with the transformation we’ve undergone this past year,” he said.
Kai Fischer, director of sales and marketing at the Sheraton, shared Stengel’s enthusiasm, confident she had a better class product to offer meeting planners, as well as individual business and leisure travelers. “It’s essential that we provide the best accommodations and best overall experience,” Fischer said.
According to Smith Travel Research and TravelClick, among other firms that track market performance, the Cap Ex investments come at a propitious time since the already strong New York market continues to strengthen further. STR reported that New York hotels’ occupancy through August was a healthy 79.5%.
TravelClick’s market projections are equally positive going forward—for the New York market overall and specifically for the group segment. Occupancy is expected to rise 6.5%, year-over-year, in the next 12 months, while ADR spikes a very healthy 15.3%. The pace of group bookings in New York, meanwhile, is up 5.9%, year-over-year through September, according to TravelClick.
While a combined $319 million refurbishment on the part of three hotels is a significant investment, it’s still only a small fraction of the dollars being spent upgrading hotels across the country in 2011. According to a forecast released in September by New York University’s Tisch Center for Hospitality, Tourism, and Sports Management, U.S. hotels actually expect to spend a total of $3.5 billion in Cap Ex spending this year.
That represents an increase of 30% over the $2.7 billion spent in 2010 and the first annual increase in such spending since 2008. The years 2009 and 2010 were especially bleak for Cap Ex investment, noted Tisch Center divisional dean and clinical professor Bjorn Hanson. Investment plummeted 40% in 2009 and saw an additional 18% decline in 2010 from record highs of an estimated $5.5 billion in 2008.
Many brands and management companies waived new and existing requirements for Cap Ex in 2009 and 2010 to assist owners in that period of decreased performance. But this year they’ve begun to be much stricter and aggressive about enforcing brand standards, Hanson explained.
Considering the severe drop in revenues they were experiencing during the downturn, many owners felt they had no choice but to defer Cap Ex spending, including some necessary maintenance projects. “As a result, many capital maintenance projects, even many noticeable to guests, were simply cancelled or postponed,” Hanson noted.
As occupancy and ADR have rebounded around the country as a result of increasing travel demand, owners like Host Hotels and Hyatt Hotels Corp. felt they wanted to get ahead of the curve by funding renovations—and having the work well underway—as the rebound gained momentum.
While the Tisch Center’s 2011 forecast shows a significant increase in investment dollars, Hanson is quick to point out that spending is likely to remain at relatively low levels. The year 2008, after all, was when U.S. Cap Ex spending hit that $5.5 billion record, $2 billion more than the 2011 forecast.
“From 2006-2008, the industry invested record amounts in Cap Ex dollars. As a result, U.S. hotels were possibly in their best condition ever when these expenditures began their decline,” Hanson reported.