Tommie, Even Hotels, 1 Hotels, Baccarat, Virgin and Edition all are experimenting with targeting a new, emerging traveler in their own respects. New York is the safest place to take that risk.
NEW YORK—During the past few years New York has become a launching pad for new hotel brands. As hoteliers experiment with brands aimed at a younger generation of travelers, New York is welcoming the debut of a handful of trendy, energetic brands with global aspirations.
“New York can be just a gateway, not everyone just stays in New York, most people want to expand beyond there. But it’s a good market to start because the people are there,” said Teresa Goebel, an attorney at Goodwin Procter LLP, which helped advise Eagle Point Hotels and Cube Capital in the development of the first two Tommie hotels in New York.
The Tommie brand is the brainchild of Commune Hotels & Resorts and is aimed at serving globetrotting millennials.
Branding experts InterContinental Hotels Group signed its first agreement for an Even Hotel in New York—a brand IHG says is the industry's “first mainstream lifestyle hotel brand focused on the wellness space.” An ownership group led by Frank Chan and Lance Steinberg will develop two Even Hotels, one a new-build at 321 W. 35th Street in midtown Manhattan and another at 219 E. 44th St., both expected to open in 2015.
"The signing of a second property for Even Hotels in New York City further emphasizes our leadership in launching new brands and commitment to their development in the right markets, with the right owners,” said Kirk Kinsell, president of the Americas region for IHG, when the locations were announced.
Sean Hennessey, founder and CEO of New York-based Lodging Advisors, said New York has always been the No. 1 destination to have a flagship property.
“It gives (brands) incredible (public relations) value and visibility for the brand,” he said.
While New York has the most hotels under construction than any other city in the U.S. by far, most experts predict the market can absorb just about any amount of new supply. Goebel said New York is “capacity constrained” and could probably use even more hotels. For new brands, that means instant occupancy with little ramp-up.
“The concern, if they went to secondary and tertiary markets, the people might not be able to get there,” she said. “Yotel started in New York because you have a market where you’re just able to get heads in beds.”
Beyond traveler recognition, another benefit for a brand to have one of its first properties in New York is the fact that more hotel developers see it.
“It’s an excellent way to have a showcase property,” Hennessey said. “You’ll have other developers see the property and get additional properties in the pipeline.”
Demand is there
Building a hotel in a secondary or tertiary market requires extensive feasibility studies to determine whether the market can absorb additional hotel rooms as well as identifying key demand drivers. In New York, demand comes in many different forms. Outside of the fact that visiting New York is near the top of every American’s bucket list, it’s also the top hub for international visitors coming to the U.S.
“Another thing that has attracted a lot of the brands: New York was the first market to really recover after the 2008 downturn,” Hennessey said. “Last time I checked, New York City on a trailing-12-month basis is now running the highest occupancy since they started collecting records. You probably need to go back to World War II days to see a time where occupancy was this high.”
“New York is a very resilient market,” said Philip Truelove, GM of The Greenwich, actor Robert de Niro's 88-room independent hotel in what is commonly referred to as the Tribeca neighborhood. “Although the downturn was certainly felt here, it was a quick recovery. The major cities in the world have so much demand coming into them. Everyone wants to have a hotel in New York.”
And New York hotels are “nowhere near plumbing the bottom of demand,” Hennessey said.
“It’s a low-risk situation for hoteliers to launch a new brand in New York City because the market is strong enough to support these hotels,” he said.
Starwood Capital Group will open in 2014 the first hotels under its two new luxury brands—Baccarat Hotels & Resorts and 1 Hotels & Resorts. Each of the brands will have an early presence in New York—there are 1 Hotels under construction in Central Park and Brooklyn and a Baccarat hotel will open on 53rd St. in Manhattan.
While Baccarat is clearly a luxury brand, the 1 Hotel brand will compete with other lifestyle, upscale brands.
New target traveler
Two brands that chose New York as their second global location—Virgin Hotels and Edition by Marriott—will also be targeting a tech-savvy, lifestyle traveler.
Virgin and Edition are both backed by global parent companies—as are 1 Hotels, Baccarat and Even Hotels. Hennessey said that is not to go unnoticed.
“One of the reasons these new brands are launching in the wake of the downturn is the fact that the lenders who were willing to get involved were looking for an established hotel company to mitigate risk,” he said. “Otherwise, they might not have lent at all.”
However, just because the brands are backed by strong parent companies doesn’t mean they’re automatically established brands, Goebel said. Each of these brands will face a challenge in defining their identity.
“Part of the challenge of these new brands is the fact that they haven’t decided what these brands are,” she said. “There is a lot of discussion into how we put the brand into words. When you’re talking about a ‘Tommie’ no one knows for sure what that means yet.”
Because of that, management contracts are evolving, Goebel said. After the drama surrounding Edition Waikiki, more agreements with brands are including commitment from the owners to meet brand standards and continue capital injection, she said. On the flipside, owners are getting assurances the brand will continue to grow.
“We’re seeing shorter-term management agreements that might be requiring a certain number of these hotels or (the owner has) a right to opt out and get new management,” she said. “We expect to see those kinds of guarantees moving forward.”
As introducing a new brand is always an experiment, targeting a little-known traveler adds even more risk.
“We’re in an era where we’re seeing more creativity—hotels are talking more experience,” Goebel said. “Are there enough millenials to justify them having their own brand?”
“The room rates for hotels in New York now are still somewhere around 5% below peak levels,” Hennessey said. “So we haven’t seen a return of the high, free-spending luxury traveler that’s willing to pay any price for the quality level they desire.
“Part of it as well is really a function of distribution and transparency shopping,” he continued. “The value-conscious angle is really the sweet spot.”