Rival hotelier Fred Kleisner, CEO of New York–based Morgans Hotel Group, predicted that the new Standard would be “an immediate aesthetic success.” But, he added, “it will have significant fiscal challenges.”
The once hot hotel market that dominated much of the Standard’s construction phase has cooled off considerably. “Demand has fallen,” noted Mr. Kleisner, whose own Delano hotel is a head-to-head competitor with the Raleigh in Miami and whose forthcoming 347-room Mondrian Soho, scheduled for completion in late 2009, will compete directly with the Mercer. (He further hinted at an unannounced new venture in the Standard’s own meatpacking backyard: “Look for an announcement one day this quarter.”)
“What has fallen significantly is the average daily rate potential across all segments throughout New York,” Mr. Kleisner said. “That’s going to be a slower recovery.”
Operating shortfalls that typically mark the first six months of a new hotel’s life cycle may now last for a full year or longer, he added.
“I’d rather be opening at the end of this year in the fourth quarter than in the first part of the year,” said Mr. Kleisner, who further questioned, given the Standard’s considerable price tag, whether Mr. Balazs would be able to maintain his commitment to lower-than-luxury rates. “If we can assume $200 million is the investment on 330-odd rooms, that’s a big number for a medium price point to make it work,” Mr. Kleisner said.
“There’s nothing to suggest that [the Standard] won’t be well executed,” he added. “André’s particularly good at getting things started with a big splash. Sustainability of service in the face of fiscal challenges is going to be a challenge for any company.”
Mr. Balazs, meanwhile, expressed nothing but confidence in his business model. “I think what the Standard is is exactly where the market should be right now,” he said. “I wouldn’t want to be opening a luxury hotel today because you’ll end up getting the same price as we’re getting here. So, I think we’re in exactly the right place in terms of the market positioning. It’s a great product, so I have no concerns about it, in terms of, you know, occupancy. And we’re doing well overall relative to the whole market. No question it’s going to be a challenge. Not so much for us but for the whole industry.”
Yet even Mr. Balazs isn’t sure what the future holds in terms of how much it’ll cost to get a room at the boom’s last great building.
“It’s too early to say because the market is changing,” he said, standing in a corner room overlooking the Hudson—the hotel’s biggest and most expensive, currently priced at the discounted opening rate of $350 nightly. “The Standard is about an affordable price, which is a question of relativity to what the market is. There’s no question, if this was a room in the Four Seasons, it would be like $1,200. But where you price it, vis-à-vis what the audience is, is sort of a function of where the market is. I think things are changing so fast right now that I would hesitate to say what it is when the hotel is fully open in July.”