The pandemic and its associated travel bans crushed hotels across the country, but the sector has come back in force thanks to a slew of positive fundamentals for the asset class.

“Who would have thought that hotels would be perceived as a darling asset class compared to office buildings?” Daniel Lesser, CEO of LW Hospitality Advisors, said at Bisnow’s New York Hotel & Hospitality conference, held at the New York Marriott Marquis this week. “That’s what’s happening now.”

New York’s hotel market was brutalized by the pandemic, forcing multiple bankruptcies and hotels spanning thousands of rooms to close their doors forever. But travel has rebounded at extraordinary rates, the years-long dispute between the hotels and short-stay providers is now on the side of the hotel industry and laws curbing construction are now in force — all a boon for hotel profits and asset values.

The total room inventory in the city has fallen to 118,000, compared to 144,000 before the pandemic, per the Hotel Association of New York City. Occupancy is still below 2019 levels, but the city's average revenue per available room, the hotel industry's leading performance metric, is higher than it was four years ago. These strong metrics mirror a national trend — last month, CBRE increased its forecast for RevPAR to nearly $98 a night nationally, a 6% jump from its previous prediction.

”If you're an existing hotel owner operator, you're looking good,” Hotel Association of New York City CEO Vijay Dandapani said. “[But] operating costs are high … in New York City, the real property taxes is the highest in the nation.”

Soaking up inventory, too, is the city’s approach to the migrant crisis, which is to set up arrival centers in hotel rooms. The Adams administration is paying $220M to the Roosevelt Hotel’s owner, the state-run Pakistan International Airlines Corp., to occupy more than 1,000 rooms.

The hotel is now being used as the city’s central intake center for all arriving asylum-seekers, Adams announced in May. More than 140 hotels have a deal with the city, Bloomberg reported, and some have been enormously beneficial to operators that have struggled with the events of the last few years.

The Holiday Inn in the Financial District formed a deal with the city, just weeks after it was put into bankruptcy, that would see the administration renting 492 rooms to house about 15,000 migrants over the 15 months paying $190 a room, compared to the $110 it would typically go for, according to the publication.

“The economic model for these for these migrants is very, very positive,” Lesser said. “I'm working with a client now, a family office knows nothing about hotels, they bought up a couple of hotels in and around New York City, specifically for housing migrants … They've retained me to help them figure out, when this is all over, what is it gonna look like as a hotel, when the whole migrant situation is over.”

It comes as hotel construction has been curtailed. In 2021, the city ratified new rules that required new hotels or major expansions to secure a special permit. In the year after the laws, leading up to December last year, no new development applications were filed, The Real Deal reported.

It is a major turnaround of an industry that was battling a dragging rates and looming oversupply just a few years ago.

“We see that the fundamentals that we're talking about and hotels really start to run, it could be a very good time for lodging here in New York,” said Jay Morrow, a managing director at Hodges Ward Elliott.

In Midtown East, for example, he said, hotel supply is down by about 35%, thanks to The Roosevelt being rented by the city, the 525 Lexington Ave. hotel closing and selling at a loss back in February and the Grand Hyatt shrinking in room size as part of the proposed Project Commodore development. Hotel Pennsylvania, further west, was earmarked for demolition in 2021.

Besen Hotel Advisory Group’s Anudeep Gosal said that between 2010 and 2019, New York saw an average of 5,000 rooms coming online every year. STR data, he said, suggests there are 12,300 rooms in the pipeline right now, which is likely to phase out and not be replenished.

“With demand and everything else recovering and having the all-time low in supply, that's something that hotel owners today and owner/operators are especially feeling very strongly confident about,” he said.

Meanwhile, the industry’s war on Airbnb is turning in favor of hotels. Under New York’s Local Law 18 — which was scheduled to take effect in July but was pushed back to September — short-term rental platforms will no longer be able to process payments from units unless they’ve been registered with the city.

At the start of June, just 29 units have successfully registered with the Office of Special Enforcement. Airbnb has sued New York City, claiming those regulations that require short-term rentals to be formally registered are forcing it to remove listings from the platform and costing it millions.

It is a significant turnaround from the pandemic, Dandapani said, because in 2020 there were around 45,000 listings in the city and no hotel business to speak of.

“These are all good things, good tidings if you work for the hotel industry," he said.

New York is Airbnb’s biggest market, and once the laws come into effect, the city will have some of the toughest regulations in the country.

“There's nothing wrong with competition, but there should be a level playing field,” Lesser said. “And that's been a fundamental issue with Airbnb from the beginning. They were not playing on a level playing field.”

Despite the buoyancy, panelists raised concerns about cost of debt and tough transactional environment. This week, the Federal Reserve raised interest rates for the 11th time since 2022, with another 25-basis-point bump. The benchmark rate is now the highest it has been in two decades.

"There's all kinds of new, pent-up energy coming from rooms coming online in the near term,” said Robert Israel, who is leading L&L Holding's TSX Broadway project. “As you go looking out six, 12, 18 months I think due to the capital market issue, it's going to be a struggle.”

There have certainly been some high-profile hotel challenges. SoHo Properties' Margaritaville Resort Times Square has been foreclosed upon by its lenders, and the entity that owns it is now in bankruptcy. And for hotel sales, like much of the real estate industry, there is something of a freeze in place.

“Volume nationally is down 50% or 60%, that's partly because of the big-box trades,” Joe Delli Santi, the chief investment officer of MCR, told the audience. “The CMBS market isn't in great shape … balance sheet lenders like Bank of America and Wells Fargo, they're not active and making $200M, $300M and $400M loans, so larger deals are inactive. The smaller stuff, it's still moving.”

JLL’s Kevin Davis, the CEO of the Americas Hotel & Hospitality Group, said the market is the process of “getting sober."

“We all drank the Kool-Aid and the punch bowl was open,” he said. “We're in the process of recovering and sobering up, and I think that's going to happen through the balance of this year.”