New York's first luxury hotel to be built in six years will incorporate the landmark 1882 Italian Neo-Renaissance Villard houses on Madison Avenue.

The $75 million Palace Hotel will be a 51-story tower only 100 feet wide rising above the four-story, brownstone facade of the old town houses at 50th Street.

The most elegant rooms of the Villard houses will be used as hotel public rooms and pedestrians will be able to enter the Palace from the Villard cobblestone courtyard.

Realtor Harry Helmsley described the project at what he called a "a building-breaking" ceremony attended by Mayor Edward Koch. No ground can be broken until wreckers demolish the town houses to make way for the Palace tower.

The 1,050-room hotel will open in about 30 months. Helmsley said, and will charge between $80 and $100 a night. It will be the first new hotel in New York since Helmsley's Park lane opened six years ago. He also owns the St. Moritz.

Koch said the Palace project is a significant step for New York because it demonstrates "that realtors like Harry Helmsley have faith in the city's future."

"Lets not forget the morgagees," Helmsley interrupted. Metropolitan Life Insurance and Massachusetts Mutual Life Insurance Co. demonstrated their faith by arranging the financing.

Koch remarked that the project, which preserves the Villard buildings and also provides the city with a new hotel, is "a modern miracle" and added that in the Palace neighborhood "one expects miracles." It is directly across Madison from St. Patricks Cathedral.

The Catholic Church owns the land and has given Helmsley a 99-year lease. Planning for the project began in 1974 but was delayed by the slump in the New York building market.

The delay caused some embarrassment for the church because it was returned to the tax rolls two and a half years ago after church organizations moved out. The church and Helmsley have been dividing the annual $800,000 tax bill.

"New York has really turned around in the last year," Helmsley said, citing the present lack of available office space in midtown Manhattan and high demand for apartments.

"It's really turned around in the last 25 days," joked Koch, who took office Jan. 1.

In addition to normal preparations for construction, Helmsley and the architect, Emery Roth & Sons, has lengthly negotiations with the City Landmarks Commission, which requires the preservation of the Villard facade. The houses were designated an official landmark in 1968.

The original entrance foyer, with its marble staircase and a zodiac clock by Augustus St. Gauders, a mosaic ceiling and stained glass windows will also be preserved, as will the gold room and the original [WORD ILLEGIBLE] drawing room.

Henry Villard, who built the six separate [WORD ILLEGIBLE] which all appear to be linked because of the [WORD ILLEGIBLE] only enjoyed his house for about six month. He was in the process of losing his money in the Northern Pacific Railroad when it was completed.

Whitelaw Reid, owner of the old New York Tribune, bought the structure and ran his newspaper from it for some years. The houses remained private residences until World War II, when many were converted to office space. The Random House publishing firm had its headquarters in two of the houses from 1948 to 1969.