Midprice Lodging Market Making A Splash In Manhattan
The March announcement by Hampton Inn that it would open four more midprice hotels in New York City in the next two years confirmed that developers still believe an untapped market exists in the city for properties at this price point.
Likewise, the first New York unit of Four Points by Sheraton, the midprice brand of Starwood Hotels & Resorts Worldwide, is under construction around the corner from the site of one of the new Hamptons in the Chelsea section of Manhattan. Other evidence of the surge in growth in the midprice sector includes the March opening of an 83-room Best Western International, located a half-block from the Javits Convention Center on West 38th Street.
Given the lingering national recession, which economists say began a year ago, development of new, large upscale and deluxe hotel projects in the city basically has ground to a halt. Only those full-service projects, such as the 863-room Westin Times Square, that received financing earlier and are already in construction, are headed for completion (BTN. March 25).
So, in this sense, the current wave of midprice development is an anomaly. For buyers who bring a significant number of room nights to New York, the growth in the number of midprice properties provides them with more options at a price point lower than they may be accustomed to paying. Even if these buyers formally aren't trading down—substituting midprice brands for the full-service alternatives they may have used in previous years—they still could add midprice options to the program and then allow travelers to choose, depending on individual budgets.
In seeking to fill what they see as an underserved niche for business travelers, developers sought out emerging areas of the city for their projects. The hotels tend to be modest in scale, land costs significantly are lower than in prime midtown locations and other barriers to entry are more relaxed. Hence, financing is less of an obstacle.
At Hampton, which is a unit of Hilton Hotels Corp., the 144-room property on West 24th Street is already under construction. A 136-room Hampton is scheduled to begin construction this summer in Herald Square, as are a 65-room prototype in the South Street Seaport historic district downtown and a 220-room hotel at New York LaGuardia Airport. The first New York Hampton, a 216-room property at JFK Airport, opened in December (BTN, March 25).
"This long-term commitment of the brand to Manhattan and to New York City overall is part of a larger strategy for us that we've been pursuing the past few years, namely to have a presence in key urban markets," said Phil Cordell, Hampton senior vice president for brand management. "Given the size and prestige of the New York market, we've been particularly eager to create as large a presence for the brand as we could."
At year-end 2001, Hampton had 1,144, mostly franchised hotels, though most are in suburban and roadside locations.
"Considering the shortage of land, it goes without saying that the urban prototypes will be vertical, rather than horizontal, and fit into the look of the city in other ways as well," Cordell said. "But while the rates, service levels and some of the other amenities may vary from suburban Hamptons, in other key ways the urban properties are very much recognizable as Hamptons. In other words, the brand promise is the same, which is essential for businesses travelers to New York who may have stayed with us in other, more traditional locations."
Brands benefit simply from the visibility that comes with a New York flagship. "We're actively building distribution for a brand like Four Points, so it's especially important that we have a hotel in key markets, such as New York. It just creates important brand recognition for us," said Sue Brush, Starwood vice president of brand operations for North America.
"In the same way, when Starwood's corporate accounts are sending travelers to New York and are seeking for a midprice option, we want them to be able to remain in the Starwood family, rather than have no choice but to stay with the competition."
Given that midprice properties in New York are likely to include upgraded amenities, they are a kind of showcase, showing the brand off to its best advantage.
At Best Western International, for instance, "the convention center hotel is a prime example of the improved quality and service associated with Best Western," said Mark Williams, vice president for North American development. As a result, Williams said the brand's development team worked particularly hard to bring such high profile additions as the convention center property into the Best Western portfolio.
In the current economy, midprice properties in New York remain under pressure to provide value. "The market's so competitive that midprice properties such as ours are increasingly expected to provide business centers, fitness rooms and in-room working desks, dataports and coffee makers, amenities that were once thought of as strictly full-service," said Vijay Dandapani, COO of Apple Core Hotels, which operates six midprice properties in the greater New York area, including the 206-room Super 8 Times Square, which opened in March.
For Super 8—as for Hampton, Four Points and Best Western—having a New York outpost is a form of competitive advantage. "We've been fighting to get into the New York market for five or six years," said Robert Weller, president and CEO of Super 8, which is a unit of the Cendant Hotel Group. "When our frequent business travelers, who know and trust the brand, get to New York, there's been this pent-up demand we couldn't satisfy. It's been hard up to now to disappoint them."
Unlike the other new midprice properties coming online, the Super 8 is a conversion, having been part of the Quality brand, a unit of Choice Hotels International. "Economically, when the property is right, conversions can still make sense," Weller said.