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The rates and occupancy levels show that business hasn't been great and we're going to probably end with a bad year. John Fox, Pannell Kerr Forster
BROUGHT TO ITS KNEES by the recession, a falloff in tourism, and an oversupply of rooms, New York City's hotel industry is enduring its worst slump in two decades. Plagued by the same speculative excess that beset other businesses in the 1980s, hotels are now being forced to refocus their attention on the demands of choosier guests in a tighter market.
"New York was the capital of happy hysteria about spending money in the 1980s," said Steven W. Brener, a hotel analyst with the company that bears his name. "People bought hotels without great concern about how much debt they were carrying. They thought the value would appreciate much faster than it did."
Conspicuous among these overstuffed properties are Donald Trump's Plaza and Leona Helmsley's Palace. But these are only the most visibly wounded in a business marked by widespread suffering. Some hotels have been unable to meet their debt payments, including the Pennsylvania, near Madison Square Garden. The Omni Park Central on Seventh Avenue, owned by VMS Realty of Chicago, is being sued by Sheraton Holding Inc. for late payments. And managers at the Stanhope, near the Metropolitan Museum of Art, said they had to cut back on staff to meet debt payments last winter.
For most of the 1980s, occupancy levels for the city's hotels hovered around a healthy 74 percent. According to the Hotel Association, occupancy levels for the first quarter of 1991 bottomed out at about 55 percent, 15 points less than the level considered to be profitable in the industry. Levels aren't expected to climb beyond the lowto mid-60s by the end of the year.
"Any time you have occupancies around sixty percent, it's not a good number. The general consensus is that the high sixties is the break-even point," said John Fox, a senior principal at Pannell Kerr Forster, an accounting firm that tracks hotels. "If you're running a fiftyto sixty-percent occupancy rate at any given time, you'd have to say there's an excess of rooms."
In addition, while occupancy levels began dropping in 1989, room rates continued to rise. The average...