A New Wave of Boutique Hotels

Boutique or independent hotels are not a novel concept for New York City. Ian Schrager popularized this concept when he opened the Morgans Hotel, in 1984, and started a company named after it. According to Oysterblog, Schrager introduced exclusivity, superstar designers and chefs, destination lobby-cum-lounges, and above all, celebrity.

Schrager’s hotels also included The Royalton, The Mondrian and The Hudson.  All of these are now managed by Morgans Hotel, which Schrager left in 2005 when he created the Ian Schrager Company with his friend, artist and filmmaker Julian Schnabel, to open the Gramercy Park Hotel.

Shortly after the Morgans Hotel launched, Richard Born partnered with Ira Drukier, to form BD Hotels in 1986. Today, they own and operate 25 hotels with over 5,000 rooms; making them the largest independent hotel owners in the New York City. Born and Drukier have developed small luxury hotels (The Bowery Hotel, The Greenwich, The Jane, The Maritime & The Mercer), as well as large commercial hotels (The Wellington & The Holiday Inn Midtown). BD is currently working on two new developments, The Marlton in Greenwich Village, which is called a “Baby Grand” hotel (opening in Summer 2013), and The Ludlow Hotel on the Lower East Side which is slated for a Fall 2013 debut.

Will Obeid’s Gemini is also active in this arena. Like Born, they develop, own and operate their boutique, neighborhood-inspired lifestyle hotels. Gemini created “The GEM Collection” after they discovered there is a ceiling on the room rates they could achieve in a SoHo hotel with a Howard Johnson’s flag.  As soon as they made the switch, they saw their ADR’s jump 12% the next year. GEM hotels are currently located in four Manhattan neighborhoods.

Today large chains also capitalize on this demand from business and foreign travelers who want a more intimate and customized experience. Hyatt has Andaz and Marriott has The Renaissance. Starwood’s The W represents 8.8% of the total US boutique hotel stock, making it second only to Kimpton which has 11.5% of this segment according to Smith Travel Research.

Smith counts a total of 777 US boutique hotels with 93,920 total rooms, of which 48% are independent and non-flagged. They account for 4.4% of the annual hotel room revenue, making them a small part of the landscape.  However, in NYC they are becoming more prevalent.  With NYC’s 2012 overall occupancy rate of 87.5%, these new additions have been welcomed.

I recently interviewed Richard Born at Greenpearl’s Hotelsnyc event. He talked about his new Pod Hotel concept, which he said targets the intelligent traveler as opposed to the “hip” traveler. Currently, they have two locations on East 51st and 39th Street. The Yotel on West 42nd Street offers the same concept with similarly sized rooms of only about 100 SF, many of which have bunk beds.

Finding a specific niche will be key for new hotels to succeed. Manhattan currently has over 70,000 rooms with over 30,000 more planned. An additional 12,000 rooms in the outer boroughs bring the New York City total to 92,000 rooms citywide. Born feels that there will ultimately be demand for the additional 30,000 rooms (plus inevitable future projects) as first time travelers from around the world all want to come to NYC.  However he feels this initial increase will be a shock to the system, lowering ADRs.

Born talked about how new sites, such as Yapta, that monitor hotel rates and automatically cancel a current reservation in exchange for a cheaper room at the same hotel. This type of technology can cut both ways. Born also mentioned that Expedia has the potential to rent out ever hotel room in NYC in 10 minutes, but rates would surely have to suffer.

The big hope for hoteliers is that NYC tourism will continue to increase. Last year, NYC hit another record of 52 million visitors. These tourists accounted for $36.9 billion in City spending. With this in mind, the mayor’s office is now pushing to get to 55 million visitors over the next few years.

Owners with manufacturing zoned sites should take note, as hotel developers are looking to expand. With construction financing now available to build ground up, more and more of these sites will be built. Born and others now have their eye on Brooklyn, as there seems to be plenty of demand for hotels outside Manhattan. However, the pricing has already pushed it out of consideration for many. Echoing this sentiment, Obeid said, “I missed my opportunity,” when he could have picked up land in Williamsburg years ago, but chose to pass on the opportunity.

James P. Nelson, Partner

Massey Knakal Realty Services

275 Madison Avenue, 3rd Floor

New York, NY 10016

(212) 660-7710

jn@masseyknakal.com

 

James Nelson is a Partner at Massey Knakal Realty Services. Since 1998, he has been involved in the sale of more than 250 properties and loans with an aggregate value of close to $2 billion in the NY Metro Area. He can be reached at jn@masseyknakal.com or 212-660-7710.

To follow James on Twitter, please go to http://twitter.com/JamesNelsonMKRS or LinkedIn at  http://www.linkedin.com/in/jamesnelsonmasseyknakal.

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