Although lodging fundamentals have never been better, panelists at our 5th Annual NYC Hotel Investment & Development Summit on Friday revealed four key issues that could bring this bull market to an end.
1. Sharing Economy
“Airbnb affects everyone,” keynote speaker, Denihan Investments CEO Patrick Denihan (shown above) says. “When you think about it, they add no real value to the economy. None.” Yet the company is valued at about $13B. That’s more than some heavy-hitters like Hyatt and Wyndam. The couch-hopping app just had to pay about $25M in back hotel taxes to the City of San Francisco. Will that set a precedent for New York—and if it does, will it matter? STR puts Airbnb’s market share in New York at about 5.4% and climbing.
2. Oversupply
Vornado SVP Fred Grapstein (above) said supply could soon get ahead of demand. Fred pointed out that right now over 16,000 rooms are under construction in the five boroughs, with 13,000 of those in Manhattan. When all’s said and done that’ll be a 16.5% increase to inventory citywide, according to data from STR cited by Fred. “We’re the greatest city in the world, people want to be here," he says. "But can we get them in fast enough to fill all these rooms?”
3. Strengthening Dollar
A stronger dollar means a double whammy of fewer foreign tourists and more Americans traveling overseas for leisure. PKF Consulting VP Daniel Hanrahan (snapped above with moderator, Herrick Feinstein partner Paul Shapses) says the main concern would be for gateway cities like (you guessed it) New York. STR estimates that 83% of foreign travelers are here on leisure trips, so if it gets too expensive to come here, they may skip it. Daniel says along with Chinese investment in hotels, an increase in Chinese tourism could help offset the losses of New York’s hotels if fewer Europeans come through town. Daniel also emphasized that we don't really know what effect a strengthening dollar would have on hotels, noting it could provide a boost from domestic leisure travelers just as easily as it could take away foreign travelers.
4. Lenders Questioning Bull Market
Meridian Capital Group managing director Tal Bar-Or (with Three Wall Capital principal Alan Kanders) says he’s working on finding a lender for a new 200-key hotel near the Barclays Center, and it’s “not a no-brainer,” to fund, even in a high-growth area. Unlike a few years ago, Tal said, “[lenders] are gonna want to know that a couple years out, when a project’s ready to deliver, they’re gonna be safe to get out of that project.” Brooklyn is full of surprises: Alan also noted guests at his two hotels are not only lodging there but staying rather than fleeing to Manhattan.
400 joined us at the Roosevelt Hotel for the event and a speed networking session, where folks made intros and talked for two minutes before switching to the next person at a long table. (It's like speed dating. Only less awkward.)
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