LaSalle Hotel Properties will relaunch the renovated Park Central Hotel following a $60-million-plus renovation.
BETHESDA, Maryland—LaSalle Hotel Properties will mark a milestone this week with the relaunch of the Park Central Hotel, a 761-room hotel in midtown New York that’s been under renovation since the real estate investment trust bought it in early 2012.
During a call Thursday with analysts, company executives shared their forecasts for the hotel and its sister property, WestHouse, a 172-room property created as part of the $60 million to $70 million renovation.
According to President and CEO Michael D. Barnello, LaSalle hopes to boost the average daily rate for the Park Central from around $220 last year to be more in line with the $275 ADR for midtown and the Times Square submarket.
“We have a hotel in an above-average location with a great physical product so I don’t think it will be a struggle to achieve that (rate),” he said. “It won’t happen in January 2014, but it will ramp up and continue to gain and diminish that delta over time.”
Barnello said all rooms at the Park Central are complete and the lobby will reopen in a few days. Renovations to the property’s restaurant and bar will be completed between August and September. He said disruptions from the ongoing work at the WestHouse will be minimal since the two hotels have separate lobbies.
The more-upscale WestHouse, which will be part of the Small Luxury Hotels of the World representation group, will open between September and November. Barnello said he expects rates to be about $50 to $100 higher than Park Central.
Even though the Park Central underwent an “elaborate repositioning” that covered all aspects of the property, LaSalle executives expect it to reach stabilization in one to three years.
“At WestHouse it will take a little longer, but that’s purpose-driven because we will hold out for higher rates,” he said. “It’s a nicer product, and we’re trying to get a corporate negotiated component that will be sustainable and meaningful. When you start a new hotel there is a trial period so we expect it to take two to four years to fully stabilize. Of course, a lot depends on how New York does overall.”
Excluding the Park Central, LaSalle posted a 6.7% increase in revenue per available room in the second quarter, based on a 4.9% increase in occupancy (to 86.6%) and a 1.8% rise in ADR. The company’s earnings before interest, taxes, depreciation and amortization margin (excluding Park Central) was 37.4%, up 99 basis points over the same period last year.
“That was the company’s highest quarterly profit margin, and it was achieved despite quarterly improvement heavily weighted by (increases in) occupancy,” Barnello said.
The company’s results differed by region and property types. Urban properties had a RevPAR increase of 8.4%, compared to 4.2% for convention hotels and 3.6% for resorts. Its three strongest markets were on the West Coast: RevPARs increased 19.6% in San Francisco, 19.2% in Los Angeles and 11.4% in Seattle.
Barnello cited muted supply increases combined with strong demand for the strong performance in those three markets.
“It’s mostly the lack of new supply, even though demand has been strong,” he said. “Supply is getting higher on the East Coast and in Chicago, but not as much on the West Coast. That should give these markets pricing power over the next couple of years.”
Several markets struggled. RevPAR for LaSalle hotels in Boston fell 0.7%, which executives attributed to a lack of citywide conventions and the effect of the Boston Marathon bombing on 15 April.
The REIT has felt little effect so far from the U.S. budget sequestration, Barnello said. Occupancy at its Washington D.C. hotels hit 91% for the quarter and RevPAR rose 4.5%.
A look ahead
Company executives are optimistic for the rest of the year, projecting RevPAR growth between 4% and 6%. Booking activity for the rest of 2013 is up 5% over last year and transient revenues on the books are 10% higher.
Barnello said the fourth quarter will be stronger than the third, which faces strong comparisons due to large citywide conventions last year in Boston, Philadelphia, Washington and San Diego.
“For the fourth quarter, we feel good about the pace (of business), plus some things that should make it stronger than last year,” said Barnello. “We hope we won’t have a repeat of (Superstorm) Sandy, plus the Congressional calendar is in our favor and the (International Monetary Fund) is meeting in (Washington) during the quarter.”