NYC's Beleaguered Hotels Have Turned A Corner, Just In Time For The Growth Cycle To End
From the early 1980s through 2008, almost every year was great for Dream Hotel Group CEO Jay Stein; the fancy celebratory dinner, hitting-budgets-by-mid-October kind of great. But the last decade, marred by a flood of supply and stagnant room rates, just hasn’t brought the same kind of good times.
“It’s been rough," said Stein, speaking at Bisnow’s New York City Hotel Summit Thursday. “There’s been successes along the way over these last 10 years, but it’s few and far between, and it’s not what we remember … We’re seeing 2% or 3% [room rate] increases on average and expenses going up 5%. It’s not a great formula."
But Stein, like many others, believes the tide is finally turning for the city’s hotel market. And, after years of proclamations to that effect, the figures are beginning to support that sense of optimism.
The average daily rate in Manhattan hit $281 in 2018, according to data firm STR, a 2% increase from 2017. Revenue per available room, or RevPAR, hit $247, a 3% increase from the year before after several years of declines.
It won’t be an overnight turnaround, but it is coming, Stein said.
“There are real opportunities coming back. It’s not next year, it’s probably not the year after — but three years out from now, I think you will see 5, 6, 7% RevPAR increases. And you can see them for a bunch of years thereafter," he said. “New York is not going to be held back.”
There is no arguing the city is swimming in hotel product.
More than 6,500 rooms have been added to the city’s supply in the last year and a half, according to Marcus & Millichap’s hospitality research report for the second half of 2018, and some 16,000 more are coming. Plus, Airbnb offerings add thousands of rooms, essentially shadow inventory, into the supply mix.
But industry players point out that the steep competition has failed to put a dent in occupancy.
“Hotels are a distribution game,” Virgin Hotels Head of Development and Acquisitions Allie Hope said. “While there’s a lot of new supply, it really depends on the type of supply. What are they offering? How are they reaching the customer?”
JF Capital Advisors CEO Jonathan Falik said he expects RevPAR increases will not be significant.
“RevPAR isn’t going to be explosive, because we are going to see some slowdown in the economy,” he said. “We are seeing very low unemployment, difficulty getting labor. We will see a lot of pressure of margins."
One enduring constant is that the city remains a top tourist destination, and people visiting need a place to sleep, despite New York's nocturnal reputation. Almost 63 million tourists came to New York last year, a record high.
Hoteliers, developers and brokers all peg their optimism to the fact the city has global allure that shows no sign of dimming.
“Everybody over the age of 12 is living on a screen, dreaming of our culture and that culture is urban, and that urban is New York,” Richard Born, the developer responsible for some of the city’s hippest locations, such as Jane Hotel, the Bowery and the Maritime, told Bisnow earlier this month.
Many investors are banking on the sector as a good place to spend. Allen Gross-led GFI Capital, the company behind the Beekman, The Ace Nomad and The James, closed Wednesday on the $420M purchase of the Parker New York hotel where the company plans to spend another $100M on improvements. Ashford Hospitality Trust this week dropped $195M on the Embassy Suites by Hilton New York in Midtown.
Even so, speakers said it is a competitive game in New York City — and you need to make an effort to stand out, even with more than 60 million potential customers a year.
“When you look at a hotel and you see where supply is, you have to be more creative,” Fortuna Realty Group Head of Acquisitions and Asset Management Ashish Lall said.
His company owns the the Hotel Hugo, Hotel Henri and Hotel Hayden, and he believes supply is going to be tempered by more subdued lending and the new M1 zoning rules that reduce where hotels can be built as-of-right.
“You have to be more creative, not just having a bed and desk and functionality with cellphones, but having the ability to attract the guest,” he said.