The Castleton Hotel was constructed in 1889, the last in a series of grand hotels built on St. Marks Place. This hotel replaced another hotel on the plot called the St. Marks Hotel. Both businesses boomed, particularly during the summer months (though there was rampant speculation that even despite the popularity, the Hotel Castleton never turned a profit).

On November 12, 1907, while closed for the winter months, the five and a half story wood-frame building caught fire. The New York Times wrote, "The hotel might have been built of paper from the rapidity with which the flames spread." Given the hotel's location high on a bluff overlooking the harbor, the conflagration was visible at a great distance. It is said that it could be seen as from "far uptown" (whatever that meant in 1907). After many hours, and a valiant but largely thwarted efforts by firefighters, the blaze burned itself out. Nothing was left of the hotel but the brick chimneys.