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  • Writer's pictureAndre Watson

New York Hotels Benefit From Influx of Migrants From Southern Border

City Contracts Help Drive Occupancy for Industry Still Trying To Bounce Back From COVID-19

The Row NYC in New York’s Times Square is one of the hotels the city has contracted with to shelter migrants from the southern U.S. border. (Andria Cheng/CoStar)

Tourists gradually returning to New York have boosted demand for hotel rooms, an industry hit hard by the fallout of the pandemic. But a big part of that recovery isn’t coming from travelers.

New York’s hotel occupancy rate in January, a typically quiet time, rose to 66.2% from 42.7% a year earlier, according to STR, a hospitality data analytics unit of CoStar Group. About 10 percentage points of that jump came from a rise in so-called contract occupancy, said Romy Bhojwani, a CoStar director of hospitality market analytics.

Contract hotel accommodations include homeless shelters as well as rooms for airline crews, first responders and any other arrangements that involve bookings of 10 or more rooms for more than 30 days, Bhojwani said.

Real estate industry analysts including Bhojwani point to migrants who have arrived from the southern U.S. border since last year as being a major driver of contract occupancy at New York hotels.

“Other contract business isn’t back to the pre-COVID level,” Bhojwani said in an interview. “Airline capacity isn’t back to the pre-COVID level. When airlines aren’t flying to New York as often, you don’t need as many rooms for the airline crews.”

The Candler office tower at 220 W. 42nd St. in New York is expected to shelter migrants. (CoStar)

U.S. Customs and Border Protection has documented nearly 2.4 million encounters with migrants on the southern border in fiscal year 2022 through September, with the number in the first five months of this fiscal year already approaching another 1.03 million. New York is said to have borne the brunt of migrants arriving by bus, after crossing the border illegally, even though some are also being housed in other cities including Chicago and Boston.

As migrants set foot in New York, Mayor Eric Adams said in March over 90 “emergency hotels” and a number of what the city calls large-scale “humanitarian emergency response and relief centers,” or HERRCs, most of which are in hotels, have opened. New York has received about 52,000 migrants since last spring — at a rate of over 800 a day and 3,000 a week at times — Adams said. He added that the city is opening two new HERRCs, including one at the Candler office tower at 220 W. 42nd St. in Times Square and the other at 455 Jefferson St. in Brooklyn.

Hotels that have served as large-scale intake centers include, in Manhattan, the Row NYC and Stewart Hotel as well as the Watson Hotel and the Financial District’s 50-story Holiday Inn, billed as the world’s tallest under the brand, according to the city. In Queens, the Wingate by Wyndham hotel in Long Island City is also on that list.

Adams said New York has spent over $650 million on migrant relief efforts from July to February with the figure expected to balloon to $4.2 billion by the middle of next year. New York is “doing what no other municipality is doing,” Adams said recently. “We didn’t even realize it was going to be as much as it was when we first rolled this out.”

The migrant hotel arrangements come as the hotel industry’s occupancy rates in New York are still struggling to bounce back to pre-pandemic levels. That’s despite the fact that average daily rates, helped mainly by demand from leisure travelers, have topped 2019 levels each month through February since February of last year, CoStar’s Bhojwani said.

While leisure demand is up, the overall occupancy rate still is hurting from a slow rebound in group and business travel, he said.

Hotels that are taking in migrants sometimes have financial issues and “really need the occupancy,” Bhojwani said. “Because they are not in great financial condition, that is why they are taking the migrant family business.”

City Contracts

Hotel contract agreements to house migrants vary. Properties such as Row NYC between West 43rd and 44th streets in Times Square and the Stewart Hotel across from Penn Station and Madison Square Garden are said to be getting $40 million and $28 million in arrangements reached last fall with the New York City Health+ Hospitals Corp., the city’s public healthcare system. The New York Post has reported Row NYC, which had been closed throughout the pandemic, is getting a daily rate of as much as $500 per night.

Trade group the Hotel Association of New York City, meanwhile, has a separate contract with the Department of Homeless Services for $237.25 million that started in September to secure 5,000 hotel rooms, according to data from the New York comptroller’s office.

The city has a total inventory of about 133,000 hotel rooms, STR data shows.

Adams’ office didn’t respond to CoStar News requests seeking additional details, nor did Row NYC and the Candler.

Vijay Dandapani, president and chief executive of the hotel association, told CoStar News the migrant hotels under its contract with the city, which he wouldn't identify, are signed up for six months at a time and have the option to end the agreement at any time with 30 days notice. Participating hotels in Manhattan get paid $185 per night and $130 in other boroughs, he said, adding the number of hotels is “dynamic” and could change.

The association’s contract had about 54 hotels participating as of March 17. None are HERRC properties.

“What it means is that the industry has not recovered, which is why they are taking this business,” Dandapani said in an email.

While the list of migrant hotels has helped the industry’s occupancy rate, it however “skews the true picture of hotel recovery in NYC,” he said.

New York is “considerably further behind” major international rival gateway cities such as London and Paris in several performance metrics, according to Dandapani. For instance, New York’s hotel properties such as the Sheraton New York Times Square Hotel on Seventh Avenue and the DoubleTree by Hilton on Lexington Avenue have been sold at “discounts of 50% or greater” compared to their previous acquisition prices, he said.

‘Predictable Income’

As the first quarter is traditionally the slowest when it comes to occupancy rates, some hotels may opt to leave the migrant hotel program when travel picks up and when they may be able to command higher rates than what the city is offering, Bhojwani said.

The average hotel daily rate in New York, for instance, stood at about $197 in January after reaching $352 in the peak holiday travel season in December, according to STR data.

“For the hotels that need the cash flow, it’s a predictable income” to house migrants, Bhojwani said. “You know you are going to get that revenue. ... They are taking on the business because it makes financial sense.”

Some hotels participating in city contracts reportedly are in the foreclosure process, especially as higher interest rates have led to a jump in borrowing costs.

The Holiday Inn at 99 Washington St. in New York has a contract with the city to operate as a migrant shelter. (CoStar)

For instance, the 492-room Holiday Inn at 99 Washington St. in the Financial District signed a contract with the city following reports of a bankruptcy protection filing in November. Its deal with the city is expected to bring about $10.5 million in additional revenue despite concerns from mortgage lenders that the contract will lead to wear and tear and “reputational harm,” according to Bloomberg News.

The hotel is getting a $190 nightly room rate from the city, almost double the $102 rate the hotel was getting in January, according to the New York Post, adding at full capacity, housing migrants would amount to the hotel getting $93,500 a day.

New York is waiting to see the impact migrant hotels will have on the local economy. While some businesses have said their sales have been hurt, Tom Harris, president of the Times Square Alliance, the group that promotes the tourism and entertainment hub known as the “Crossroads of the World,” told CoStar News that he hasn’t received any negative feedback from its members and said there’s no direct correlation to how businesses near migrant hotels are performing.

“I’ve heard those issues about some of the businesses surrounding the Row hotel suffering, but [nearby restaurant] Carmine’s is blowing away 2019 numbers. It depends on the businesses and how they are doing. There are a lot of businesses that have been exceeding the 2019 numbers,” Harris said.

These properties “are not going to house the migrants forever,” he said, adding the Candler, for instance, has plans to be converted from an office tower into a hotel.

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