Big question marks for New York City’s hotel industry as migrant shelter era winds down

Hotels were struggling at the height of the COVID-19 pandemic, and New York City Mayor Eric Adams’ administration offered a lifeline to some of the city’s most cash-strapped operators by awarding them over $1 billion to house the surge of newly arrived migrants.

Now, some of those contracts are set to expire as City Hall pushes forward with its plan to shutter 53 migrant shelters by June. The administration said in February there were fewer than 45,000 migrants living in city shelters, down from a January 2024 high of 69,000, and arguing that closing the hotels was justified.

Meanwhile, New York City hotels are more expensive than they’ve ever been, due in part to how many closed during the pandemic. More than 6,000 hotel rooms shuttered permanently during the COVID-19 pandemic, as many hotel operators didn’t host travelers for more than a year. Migrant shelters occupied a peak of about 19,000 hotel rooms from 2021 to 2023, and continue to keep at least 14,000 rooms off the market. The mayor’s office did not return a request for information on how many hotel rooms are currently being used to house migrants.

The contraction in hotel rooms – combined with a rebound in tourism last year that saw the city’s number of tourists almost equal 2019 – pushed average daily room rates to $318 last year, including a peak average of $440 a night in December. Legislation that created strict new rules for short-term rentals in the fall of 2023 also slashed the number of Airbnb listings in the city to less than 1,000, further limiting travelers’ options and pushing room rates up even higher. Still, in the next two years, the city should see a portion of the migrant hotel rooms return to the market, plus up to 9,300 new hotel rooms that are currently under construction. Questions remain about how well the city’s hotel market will absorb the new (and old) inventory, particularly for an industry that lives or dies based on occupancy rates and revenue per available room.

By some metrics, however, the local hotel industry still hasn’t rebounded to prepandemic levels, despite projections that it would by 2025, and it faces a number of fiscal and regulatory headwinds, including strict requirements on new hotel construction, rising operating costs and new hotel labor union contracts. The powerful Hotel and Gaming Trades Council, which represents about 40,000 hospitality and casino workers in New York and New Jersey, has had an outsized influence on the hotel market and its room rates, by making it difficult to build a new hotel – or even operate an existing one – without a union hotel contract. Rich Maroko, president of the hotel workers union, argued that the hotel special permit, which has only allowed a few hundred new hotel rooms in the past three years, “rightsized the number of hotels that were being built. The pace that hotels were being built was unsustainable.”

To top it all off, President Donald Trump’s policies may put a dent in stays from international tourists, who tend to stay longer and spend more than their domestic counterparts.

The economic health of the city is closely linked with the hotel industry, which propped up $51 billion in spending from travelers, 388,000 jobs in leisure and hospitality, and $6.8 billion in tourist tax revenue in 2024, according to the mayor’s office. They’ve served as isolation rooms for COVID-19 patients and safe, first respites for migrants who traveled thousands of miles. But if the hotel landscape starts permanently changing for the worse, it could limit the city’s capacity to deal with future crises.

Closing migrant shelters

The migrant shelter hotels are a bit of a thorny issue for both the hotel industry and the city as a whole. Shuttering them too quickly could leave the city with a shortage of rooms for homeless New Yorkers and migrants alike. Still, some advocates cheered the planned closure of the hotels and tent shelters, arguing that they didn’t provide proper case services, food or care for some of the most vulnerable newly arrived immigrants.

“It’s great to close these large sites that made it difficult for us to get to our clients, like the tents on Hall Street,” said Kathryn Kliff, a staff attorney with The Legal Aid Society. “There’s a local law that restricts shelters to 200 beds, and 200 we think is far too many. When you’re talking about thousands, you’re talking about increasing the difficulty of providing services.”

Although Legal Aid is concerned about the lack of beds, Kliff said the city’s projections – which officials recently shared with her and other advocates – show a declining shelter population and enough beds to house them. She noted that the major shelter sites, like at the Roosevelt Hotel and the Row NYC Hotel, are very well known, sparking fear of ICE raids among immigrants who may have decided to leave city-run shelters recently as a result.

“We do have concerns about the number of people who have left the system and how well it was communicated,” she said. “We have concerns that some people may be going into unsafe situations. The shelters are closing so quickly, much more quickly than I think even the city expected. They don’t have enough capacity in (the Department of Homeless Services) to take everybody now. But their projections seem to show enough cushion.”

Meanwhile, the shelter contracts have provided a cash infusion to some of the city’s most financially distressed hotels, which will finally have to face the music (and their lenders) once their deals with city agencies run out later this year. Those hotels would likely require costly renovations due to their heavy use as 24/7 migrant shelters, which might motivate some of the current owners to sell or consider converting the buildings to apartments. A January report from commercial real estate brokerage Cushman & Wakefield identified 7,300 shuttered hotel rooms that were expected to be converted to another use, including the now-famous, 1,025-room Roosevelt Hotel, which is among the hotel shelters set to be closed in June. Pakistan International Airlines, which owns the building that was the symbolic heart of the migrant influx, has not said what it will do with the property.

Changing landscape

Jan Freitag, national director for hospitality market analytics at real estate data clearinghouse CoStar, said even if the migrant shelter hotels are reopened to the general public as hotels, costly renovations would likely turn them into more upscale properties.

“These projects might get sold to someone else,” he said. “It’s very difficult to build a new hotel. (A buyer might say,) ‘Let me buy it and move it upmarket. Combine rooms, let me take out some walls. Move it way upmarket to four-and-a-half stars.’”

He felt that the New York City hotel industry had a “pretty healthy 2024.” Hotel operators took in 9.2% more revenue per available room in 2024 than 2023.

Roughly 5,300 new hotel rooms are expected to open their doors in 2025, with another 1,700 in 2026, according to Freitag.

Zachariah Demuth, the global head of hotels research at commercial real estate brokerage JLL, felt that CoStar’s estimates for new hotel construction were a bit optimistic. He argued that there were only 5,000 units under construction, with half of those set to be complete in the next two years.

Plus, most of the shelter contracts with hotel operators “go through at least the end of 2025, if not 2026,” he noted. “Let’s say they all were to end in 2025. Many of them were not in the best condition before the situation. We’re looking at a five-year horizon for them to be returned to market. Half of those will be converted to other uses.”

Ultimately, he predicted that the migrant shelter hotels and new construction would add about 10,000 new hotel rooms over the next two years in New York City, essentially returning it to its prepandemic total of 129,000 rooms.

Uphill battle

Vijay Dandapani, who heads the Hotel Association of New York City, said the impact of the end of the migrant shelter contracts will pale in comparison to the rising operational and labor costs facing hotels. A change in how hotel property taxes are being calculated by the New York City Department of Finance could increase hotel owners’ taxes by 20%, he said.

“Let’s say your tax bill today is $10 million, it could easily go to $15 million,” he said.

He also argued that revenue per available room and occupancy would have been worse if not for the thousands of rooms rented to migrant shelters. And even with those rooms off the market, he said last year’s revenue per available room – when adjusted for inflation – still fell a few dollars short of 2019. His trade organization manages an up to $1.04 billion migrant shelter contract for hotel operators.

He said he’s also worried about upcoming negotiations for hotel staff contracts with the Hotel and Gaming Trades Council, which will begin hammering out a deal for agreements set to expire next year.

“If you’re a union hotel, union wages can account for 50% of your topline (expenses),” he said. “And real estate taxes and insurance are going up.”

Dandapani wondered if a Trump-induced decline in foreign tourism was on the horizon too. March airline tickets booked between Canada and the U.S. declined 70% compared to a year ago, according to airline analytics provider OAG.

Nevertheless, Freitag, Demuth and other industry analysts pointed to three major contributors to the city’s lofty room rates – the migrant hotel shelters as well as strict requirements on both short-term rentals and new hotel construction. The hotel trades union played a significant role in both policies becoming law.

New York City has 9,300 hotel rooms planned or under construction, according to CoStar, which is a decrease of 41% from 15,777 rooms under construction in mid-2020. The citywide hotel special permit, which passed in December 2021, prevents hoteliers from building without going through the city’s land use process, which requires approval from the City Council. And a local council member would be unlikely to approve a new hotel special permit without support from the Hotel and Gaming Trades Council.

Only two hotels have been approved in the past three years – the 130-room Little Nell Hotel, which is an office-to-hotel conversion at 10 Rockefeller Plaza, and a yet-to-be-named 250-key hotel at Willets Point. The rest of the hotels that are either permitted or under construction right now were filed by developers in a mad rush before the hotel special permit went into effect at the end of 2021.

Maroko, for his part, argued that the citywide hotel special permit was necessary because “there were way too many hotels in the pipeline. The city was being overbuilt, and a lot of those hotels failed and were turned into homeless shelters.” He added that the special permit process – which is similar to a rezoning in length, cost and complexity – “means developers are going to have to be more thoughtful about (hotel development) and get the community’s buy-in.”

Similarly, Local Law 18, which was passed in 2023, regulates Airbnb listings and makes them more difficult to list and operate by requiring operators to register with the city’s Office of Special Enforcement and to certify that their short-term rental unit complied with all of the city’s housing, fire and building codes. The legislation also allows landlords to place their buildings on OSE’s prohibited buildings list, which would bar tenants from registering and operating a legal short-term rental. By September 2024, Airbnb listings in the five boroughs had dropped 85% compared to August 2023, just before Local Law 18 went into effect, according to Gothamist. OSE has issued roughly 2,000 short-term rental licenses so far, according to Airbnb.

“It’s extremely hard to get a license in New York City,” said Nathan Rotman, Airbnb’s director of policy strategy for North America. “It is by far the strictest, most aggressive law we’ve seen in North America.”

In November, the hotel union also helped shepherd the passage of the Safe Hotels Act, which requires hotel operators to get a $350 license in order to operate, staff the front desk 24 hours a day, require a security guard for larger hotels, install a panic button, and to directly employ “core” staff, such as front desk attendants, housekeepers and door staff, rather than use contractors.

All three policies were clear victories for the hotel union, which successfully limited new hotel competition in the five boroughs while pushing for other legislation that makes unionizing existing hotel staff easier.

Barry Dinerstein, who retired from the Department of City Planning in 2022 as a deputy director after 37 years at the agency, didn’t mince words about the hotel trades’ involvement in the citywide hotel special permit.

“The strategy of the hotel workers union was to reduce the number of hotel rooms in the city by getting rid of the nonunion, independent hotel operators that had proliferated over the past 25 years,” he said. “Over the long term that was a really stupid strategy, but over the short term, when the union came in for a contract, the union would say (to members) that we can’t give you a great contract because these nonunion guys are driving down rates and we have to be competitive.”

He added that community support for the hotel special permit sprang from neighborhood opposition to hotels being operated as homeless shelters. The practice sparked several controversial standoffs with neighbors during the de Blasio administration, including one high-profile battle over a Holiday Inn turned homeless shelter in Maspeth, Queens.

“Communities thought this would stop people from building hotels and converting them to homeless shelters,” he said. Ultimately, though, the hotel special permit does allow hotel developers to skip the land use process if they file plans for their hotel with use for homeless occupancy, as long as they came prepared with a letter from a city or state commissioner backing the project.

Dinerstein was pessimistic about the hotel special permit, and thought it would likely harm the industry and travelers’ hotel options.

“The effect of this over time is that it would be extraordinarily expensive to stay here, and that the services in the hotels would be mediocre at best,” he said. “And as new types of products came into place, New York City wouldn’t have them because the union wouldn’t allow it and because there would be no reason to invest.”