Despite Worries About Supply, Some Say NYC Still 'Under-Hoteled'
Reports of the death of NYC’s hotel boom have been greatly exaggerated, according to the panelists at Bisnow’s 6th Annual Hotel Investment and Development Forum.
Despite the city’s total key count growing by over 30,000 since 2007, to a total of over 100,000—reflecting a level of construction in the hospitality sector not seen since the '20s or '30s, many of the panelists were bullish about the future of hotels in NYC.
“A lot of people have been saying the hotel boom in New York is coming to an end, but I don’t see any empirical evidence to prove it,” says Dan Lesser (pictured above on the right with Walker & Dunlop’s Neil Bane and Tribeca Associates’ Mark Gordon), CEO of LW Hospitality Advisors.
“In terms of fundamentals, there’s never been a better time to operate a hotel in the US, and I still think New York is under-hoteled,” he adds, noting that occupancy rates last year still hovered around 90% in NYC, far above the national rate of about 65%. “If you buy today and hold for seven or 10 years, I don’t see how you can lose,” Dan says.
Mark Gordon, a managing partner at Tribeca, agrees, especially if you look at the supply of rooms in specific submarkets.
“Lately you’ve seen the LES, the meatpacking district, FiDi, all these neighborhoods where people never would’ve considered staying in a hotel a few years back really come into their own,” he says.
“Lower Manhattan is a market roughly the size of Chicago, but it only has about 6,000 rooms,” he says. “And most of those hotels are in pretty poor shape. So I think there’s still tremendous opportunity out there.”
Mark should know—the Baccarat Hotel on West 53rd St Tribeca co-developed with the Starwood Group sold last year for $230M, setting a citywide record of $2M-per-room. Tribeca’s also working on a 26-story hotel in the FiDi right now.
Nonetheless, lenders have been a bit spooked by the recent boom, and panelists say financing for hospitality projects is a bit harder to come by these days than in years past.
“A lot of lenders are shying away from hospitality in New York right now, but if you have solid, longstanding relationships, you can still make it work,” says Ashish Lall, a director at Fortuna Realty Group.
Meridian Capital Group senior managing director Tal Bar-Or (pictured above, center right, along with Windels Marx Lane and Mittendorf’s Wayne Cook, Quadrum Global’s Seth Schumer and Ashish) says that roughly jives with what he’s seeing as well.
“Lenders liked NYC hospitality a lot in 2014, 2015, but now there’s definitely a sense that they don’t want to be there,” he says. “They feel like RevPAR has peaked and can only go down from here.”
“My view is that doesn’t really matter,” he adds. “If you’re going 100 miles-an-hour and then you slow down to 70, you’re still going pretty fast.”
He says you can still find financing if you can demonstrate a vision for a project that goes beyond back-of-the-envelope calculations about occupancy, net revenues and the like.
“A bunch of numbers divorced from the specifics of a site will not cut it anymore,” he says. “You’re not just buying a box. You’re buying a box you have to bring to life and differentiate from every other box out there.”
What Tal’s talking about, of course, is branding.
Mitch Garrett, a VP with Trump Hotels, says with the Trump name stamped on your hotel, you can never take your brand or its relevance with your target audience for granted.
“Obviously, we’re well-known for our focus on the high-end, luxury experience side of the market,” Mitch (pictured above with StreetSense’s Adam Williamowsky) says.
“Lately though, we have been trying to target Millennials, and our traditional approach to branding doesn’t necessarily fit that bill,” he says. “They’re looking for something a bit more approachable, so we’re looking at ways to round out our brand by hitting that market as well.”
In an era when anyone with a smart phone and a Yelp account is, literally, a critic, keeping a brand consistent and interesting is crucial, panelists say.
Kelly Sinclair (above, with RSM’s John McCourt and Yotel’s Jason Brown), head of development and acquisitions at Ace Hotel Group, says Ace’s brand has always centered on staying true to its roots.
“Ace was born out of the experiences of our founders in a lot of non-hotel-related areas, like tattoo parlors and record stores,” she says.
Even as its expanded into a worldwide chain, Ace has tried to keep that spirit of artistic cross-pollination going by staying involved in local arts scenes and promotional activities like pressing a record of lullabies.
“We don’t really have a prescribed theme or look for our hotels, each one is different,” she says. “It’s more about maintaining an energy or a feeling, so that you can walk into one of our lobbies and know you’re at an Ace.”
Jason, Yotel’s chief development officer, agrees that establishing a strong brand is about more than homogeneity across different hotels, and stresses the importance of constant innovation.
One concept Yotel’s particularly excited about these days, he says, is its recent string of by-the-hour airport hotels, the newest of which opens in July in Paris’s Charles de Gaulle airport.
The concept was inspired by hotels in Southeast Asia, Jason says, which squeeze every last drop of utility and aesthetic sensibility out of a limited amount of space.
That design philosophy and the by-the-hour pricing model have allowed Yotel to reach 200% and even 250% occupancy in some of its airport hotels.
“We build an innovation budget into every project we do,” he says. “For us at least, we see brand loyalty as being dependent on constantly pushing the envelope.”
Jay Stein, CEO of Dream Hotels (pictured above with Anchin Block & Anchin's Marc Wieder), is optimistic about the future as well, but he’s also clear-eyed about the difficulties the industry faces in NYC amidst the ongoing supply boom.
“Most 10-year period, you have eight good years and two soft years,” he says. “Since the crash we’ve had eight soft years.”
He says New York’s move to hike the minimum wage to $15-an-hour will also present difficulties in the future.
For that reason, he says Dream is currently concentrating its focus outside of New York, but at the end of the day he says his firm still operates with a long-term outlook, and says Dream will continue to be a player in NYC for a long time.