Manhattan hotel frenzy

The New York Sun has a front page story by Michael Stoler on the hotel construction boom that will result in 5000 additional rooms in 2007 with thousands more slated for the next couple of years based on construction starts. While the city will lose some inventory due to the closure of the Hotel Pennsylvania and the probable conversion of the Roosevelt (when sold) to an office building, the spate of rooms coming on line ought to give pause to cooler heads who have lived through a few cycles of the industry. It does not take more than a slight economic hiccup (which the currently roiling sub-prime mortgage market could bring about) to make at least some of these projects unviable given the low equity threshold for lending for new projects. A more serious downturn like that of the early nineties or 2002 to mid-2004 will likely make many of the projections that the new projects are based on to look pretty foolish.