The Big Apple Is Seeing More Office-To-Hotel Conversions

NEW YORK?The ability to be inventive is a key to survival in New York City. You got a problem? Deal with it. The lodging industry?s been doing just that for the past several years when faced with the inherently high barriers to entry here for new product. Taking advantage of a recent trough in commercial real estate sales of office buildings, a fair amount of hotel companies have been able to create or add a footprint within the Big Apple by buying and converting either outmoded or under-utilized structures designed for the 9-to-5 set. The projects have been wide ranging, from boutique properties with rich detailing to extensive renovation of historic landmark buildings. Interestingly, the reinterpreted spaces emerge in all parts of Manhattan, with no one section favored. ?New York City?s travel business has seen a renaissance in recent years. As the need for more hotel rooms continues to escalate, we have seen the innovative conversion of non- traditional properties to first-class accommodations,? said Joseph Spinnato, president of the Hotel Association of New York City. ?This has allowed the hotel product to become more diverse and more attractive to a larger number of travelers. By using currently available commercial space,the industry is building toward the future on the cornerstone of New York?s architectural heritage.? Spinnato?s statement is literally true. The most pointed example is the soon-to-open Regent Wall Street. Centered in the downtown financial district, the $80 million project at 55 Wall Street is being carved from a structure built in 1842 as the Merchant?s Exchange. Owned and developed by SK 55 Wall L.L.C., which is headed by Sidney Kimmel, and operated by Regent International Hotels, a part of Carlson Hospitality Worldwide, the 144-room property is the first hotel on The Street. Looking to capture business, leisure and local markets, the luxury property is being reconfigured to reflect the brand?s reputation for elegance, as well as the Italian Revival architecture found throughout the city. Oversized guestrooms will include 46 suites, marble bathrooms and hand-blown Italian glass light fixtures. While 55 Wall may have a high profile as a conversion/preservation project, for the most part, hotel developers have been looking to office building structures that require less architectural complication. ?The reason you don?t see more [of these conversions]is that a lot of office buildings are designed to have a very large floor plate and the perimeter of the plate is optimal for business tenants,? said Sean Hennessey, director of hospitality and leisure practice for PricewaterhouseCoopers. ?The optimal hotel is a long, narrow building?two rooms separated by a corridor. A lot of office buildings also have huge central areas that can?t be converted to hotel rooms. So, it?s a strong drawback.? One solution to that type of problem is to gut the interior of the building while maintaining the exterior, and adding signage. That?s how an office building? originally built as a hotel in 1916? on East 44 Street opposite New York?s most celebrated train station came to be the 155-room Fitzpatrick Grand Central Hotel. According to Sean Holmes, general manager of the hotel, the path wasn?t that easy when the Fitzpatrick Hotel Group went looking to add a sister property to its location on Lexington Avenue and East 57th Street. ?We had looked at hotels, and perhaps the purchase price or the intricacies of the land leases didn?t suit us from a financial or operations point of view. Also, we didn?t want to acquire something that was already in place. It was easier to start from scratch and do what we wanted.? Investing $27 million funded by Allied Irish Bank in a joint venture with Blackacre Capital Group L.P., the Fitzpatrick Group acquired the 10-story property in third-quarter 1997 and began reconstruction. ?Everything was old,? recalled Holmes, who noted roadblocks encompassed the floors, electrical wiring and plumbin