Harry Helmsley didn't expect to lose $1 million a month on his luxurious new Helmsley Palace hotel on Madison Avenue at 51st Street in the first three months of 1981. But he did.
He also lost $1 million a month on his new Harley on 42d Street between Second and Third Avenues.
New York's No. 1 real estate mogul with $5 billion in property, Helmsley can afford to be philosophical about dropping a quick $6 million in the hotel business. "When it's good, it's very, very good; but when it's bad, it's terrible," he said.
New York City's hotel business has indeed been terrible, just as five new luxury inns with 4,352 rooms are opening. It is the first burst of construction since the 1964-65 World's Fair.
Because the $800 million hotel industry, with 25,000 employes, played such a key role in New York City's recovery from economic collapse in 1975-76, its surprising weakness in 1980 and 1981 underscores how fragile the city's economy remains.
Occupancy declined to 78.4 percent in 1980 from a 30-year-high of 81.4 percent in 1979.
The first quarter of 1981 was the worst in five years, down 5.6 points from 1980, according to the accounting firm of Pannel Kerr Foster.
Convinced that business would drop 10 percent in 1981, keep sinking in '82 and stay low until 1981, according to its president Robert Tisch, the Loew's Corp. recently sold the Warwick and Drake hotels.
One expert estimates that in the first quarter of 1981, as few as 40 percent of the rooms available were actually filled at the three biggest new hotels -- the Palace, the Harley and Donald Trump's Grand Hyatt.
The Waldorf lowered top rates on doubles from $180 to $172. Top rates at the new Vista International at the World Trade Center were slashed by $30. The new Parker-Meridien offered "introductory rates to celebrate our opening": $16 off the prices posted before it actually opened six weeks ago. And Helmsely cut rates by $30 at the Palace and $28 at the Harley.
"We're probably all in the same boat," he said. But how did they wind up there?
The origins of all the new hotels can be traced to the depths of the city's collapse in 1975-76 -- the trough of a disastrous decade that cost the city 447,000 jobs (down 12 percent) and just incidentally, 20,162 hotels rooms (down 17 percent).
The hotel inventory had hovered around 120,000 rooms from 1945 to 1960 before peaking at 131,000 before the 1964-65 World's Fair, according to Bjorn Hanson, senior principal at Laventhal & Horwath.
The glut reduced occupancy, which had averaged 77.7 percent in 1950s to 72.9 percent in 1964-69. Then two recessions (1969-70 and 1973-75) that cost the city 300,000 jobs drove occupancy even further down to 65.3 percent in 1970-75.
Only three new hotels (all luxury -- the 640-room Park Lane, the 292-room U.N. Plaza and the 650-room Halloran House) were built between 1964 and 1979. The shakeout finished off scores of moderately priced hotels in secondary locations. By 1979 the room count had plunged to 95,000 -- down 28 percent from 1963.
By reducing the supply of rooms, the shakeout was setting the stage for a big bounceback in business if demand picked up. At the same time, rates increased from $12.57 per room in 1963 and $22.46 in 1969, to $32.17 in 1976.
Hyatt's Trump made his deal first -- a lucrative 40-year pact with the city and state in May 1976 to rebuilt the Commodore, a rail-era relic with 2,000 rooms at Grand Central Terminal, into the $100 million Grand Hyatt with 1,347 luxury rooms. Instead of property taxes, Trump pays the city rent and a share of the profits.
Two months later, the Bicentennial "Op-Sail" was nationally televised, followed two weeks later by the Democratic National Convention -- both big boosts to the city's economy. That year occupancy improved, from a dismal 64.2 percent to 1975 to 72.2 percent -- where it hung, like a question mark, in 1977.
At that point, the city's elected officials, eager to spark new building in what critics were still calling a dying city, offered temporary property tax breaks for new construction to shore up the city's tax base over the long haul. b
The policy may have planted the seeds of the current surplus by producing more new rooms than market forces would have.
The Halloran House was the first to get a tax break in February 1977, winning a $5.1 million exemption on construction costs of $21.5 million.
Helmsley lost no time persuading Mayor Abe Beame's administration in September 1977 that the $100 million Helmsley Palace, a project planned since 1974, would not proceed without a 10-year, $6.2 million tax break. In 1978, he got $4 million off his taxes on the $75 million Harley -- originally planned as a Holiday Inn.