New York hotels are having a very good year.
In July, New York City posted the strongest year-over-year ADR and RevPAR growth of any top 25 U.S. hotel market. ADR reached $351, up 24 percent. RevPAR rose 27 percent to $306. Occupancy has since pushed above 90 percent, with rates north of $400. For an owner with the right hotel, the right basis, and the right capital structure, those are exceptional numbers.
That part is real. What's less clear is how much it tells you about any individual deal.
This month, the former hotel at 511 Ninth Avenue went back to its lender through foreclosure for roughly $70 million. In Brooklyn Heights, the Hotel Bossert, purchased for $100 million last year, is being redeveloped into Ritz-Carlton-branded luxury residences instead of reopening as a hotel.
Same city. Same market. Different outcomes.
That's not a criticism of the hotel market. It's a reminder of how markets get used. We sort entire asset classes into buckets. Hotels are hot. Retail is back. Office is recovering. Multifamily is safe. Industrial is slowing. Then we make decisions as if the bucket tells us what we need to know.
It doesn't.
A strong market can improve a good deal. It can give you room for error. It can make you look smarter than you are. It cannot fix a bad basis, too much leverage, the wrong capital structure, or a business plan that never worked.
I've seen this repeatedly. Some of the weakest deals get done at the exact moment everyone agrees an asset class is attractive. Once the consensus is obvious, people stop underwriting the deal and start underwriting the market. That's where the risk builds.
Hotels make the point clearly because performance is so visible. A room that sold for $300 last year can sell for $400 this year. Occupancy can exceed 90 percent. Demand can be undeniable. None of that tells you what the owner paid, how much debt sits on the property, when it matures, what the renovation cost, or what the original underwriting assumed.
Those aren't footnotes. They are the deal.
A troubled asset is also not always a bad asset. The Bossert is an extraordinary building in an extraordinary location. A future as luxury residential doesn't mean the property failed. It means someone looked past its current use and found a different way to create value.
Sometimes the best decision isn't how to make the existing plan work. It's admitting the plan is the problem.
New York is full of buildings that outlived their original purpose. Hotels become residences. Offices become apartments. Warehouses become studios. The real estate doesn't care what we called it when it was built. Capital does.
That's why I pay attention when a strong market produces distressed assets. There is more information in that contradiction than in another report showing ADR up 24 percent. Market strength and investment performance are two different things.
The market sets the conditions. Your basis, debt, timing, and business plan determine how well you play them. Right now, demand is strong, rooms are expensive, supply is tight, and investors are paying attention. That helps the owner with a good deal. It does nothing for the one without.
New York hotels will keep posting strong numbers. The market is not what will determine who wins.
If you don't have the deal, a $400 room won't save you.
