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The Wall Street Journal: Hotels Sprout on New Ground

20-Oct-2010

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Hotels Sprout on New Ground

More Projects Take Root Outside Manhattan; Nearby Transportation Can Be Key

By M.P. MCQUEEN

Hotels are popping up everywhere in Brooklyn and the other boroughs outside Manhattan, some in very strange places.

The hotel wave is coming more than a decade after the 1998 opening of the New York Marriott at the Brooklyn Bridge, Brooklyn's first new luxury hotel in a half century. Now dozens of new lodgings are coming to the borough, as well as to Queens, Staten Island and the Bronx.

For instance, the 321-room full-service Sheraton Brooklyn New York Hotel opened its doors in June, and it will be followed by a boutique-style hotel, the Aloft Brooklyn, with 176 rooms in January. Both are brands of Starwood Hotels & Resorts Worldwide Inc.

A full-service hotel, the Hyatt Place, is planned for a 2012 debut at the corner of Nevins and Schermerhorn streets. McSam Hotel Group LLC is developing the property near the future Nets basketball arena in Brooklyn, according to the NYC & Company Inc., the convention bureau. A boutique hotel and condominium project, the Hotel Williamsburg and the Residences at the Williamsburg, are scheduled for opening next spring.

Meanwhile, limited-service properties like Choice Hotels International Inc.'s Comfort Inn, InterContinental Hotels Group PLC's Holiday Inn Express and others are taking root near subway and railroad stations across the city, usually close to hospitals, airports or major highways.

"New York is a very, very hot market and everybody wants to be there. The availability of debt financing and land is the only issue" says Jan Freitag, vice president of Smith Travel Research Inc. in Hendersonville, Tenn., a hotel-data provider.

About 19 new hotels are under construction in the outer boroughs and dozens more are in the planning stages, including a Hilton on Gold Street in downtown Brooklyn, Mr. Freitag says.

InterContinental has 14 new hotels in the pipeline in all five boroughs, including Crowne Plaza, Hotel Indigo, Holiday Inn and Holiday Inn Express brand franchises, says Jim Anhut, the company's chief development officer in the Americas. Another Holiday Inn Express will open in the Bronx in 2012. A Crowne Plaza is on the drawing board for Long Island City in Queens in 2013.

One of the newest limited-service hotels, a Days Inn Yankee Stadium, at Brook Avenue and 167th Street in the Bronx, is less than a mile from the ballpark. It's a short drive but a long walk through a gritty neighborhood. Days Inn is a franchise of Wyndham Hotel Group.

Another Days Inn in Long Island City, which opened in 2007, sits on the site of a former gas station on Queens Boulevard across from LaGuardia Community College and next to the screeching No. 7 elevated train. It's about 15 minutes from Midtown Manhattan and less than a half-hour subway ride from downtown Flushing, CitiField and the USTA National Tennis Center.

Rahul Bodalia, manager of the Days Inn, says the 74-room Queens hotel is about 80% occupied most of the time, after a slow start. Surprisingly, most visitors aren't youthful backpackers but European families, he says. Danish, Russian, French and Japanese guests have posted reviews on its website. Its small parking lot was mostly full with vehicles with license plates from Ohio, Illinois, Washington state and Florida. Rooms average $109 to $149 a night, he says.

Mr. Bodalia acknowledges the location is very loud and sometimes guests complain. "But if you want to stay in the city near the subway, there is subway noise," he says, as his voice was nearly drowned out by the rumble overhead on a recent afternoon. He adds that all the hotel's rooms have noise-reducing windows.

Companies say hotels are proliferating in the outer boroughs—and close-in suburbs, too—because of rising demand from business and leisure travelers for affordable lodging outside Manhattan, as well as for meeting and banquet facilities.

Full-service hotel room rates through August of this year ran about $208 a night in the New York metro area, up 7% over the same period in 2009. In Manhattan, the average nightly rate during the period this year was $228, while in Brooklyn, the average room ran $140 a night, Mr. Freitag says.

Lower land prices and greater availability outside the city core also have made development in the boroughs more feasible, at least until funding for new projects dried up during the recession. Most hotels under construction were financed prior to the downturn, companies said.

Bjorn Hanson, dean of New York University's Tisch Center for Hospitality, says hotels outside Manhattan are closely tied to occupancy rates and per-room revenues within Manhattan, and essentially serve as "overflow" accommodations for people turned away or priced out. When per-room revenues in Manhattan fell 30% from peak to trough during the recent recession, outer-borough hotel revenues fell slightly more than 50%. Still, "I think the long-term outlook is favorable" for outer-borough hotels, he says.

InterContinental's Mr. Anhaut says outer-borough hotels increasingly have their own clientele in "people that are local and have friends and family visiting that may live in a small apartment and need accommodations."

Not so long ago, building a full-service, luxury hotel outside Manhattan was considered "unthinkable," says Joshua Muss, principal of Muss Development LLC, the company that initiated planning for the Marriott Brooklyn Bridge property during the last big real-estate bust, in the late 1980s. Lining up financing was tough for the initial 376 rooms and took years. But the Brooklyn Marriott turned out to be so profitable that by 2006, the company had nearly doubled its size, bringing the total to 667 rooms.

Mr. Muss credits MetroTech Center office complex—which houses J.P. Morgan Chase & Co. and other corporate offices—as well as the Brooklyn Academy of Music, with helping make the borough a business and tourist attraction in its own right. "Who would have thought that at first there were no hotels and now there are about 30 within a mile or two?" Mr. Muss said.

Most of the new hotels aren't plush, however. Many offer little more than a breakfast nook, an Internet connection and "gym" consisting of a treadmill. Some new hotels are in places that don't seem to have much going for them other than their proximity to public transportation for reaching somewhere else.

Americas Best Value Inn is nestled between the elevated tracks of the L train and a disused freight rail line crossing Linden Boulevard in hardscrabble Brownsville, Brooklyn. It opened this year.

The area is home to Brookdale University Hospital and Medical Center, a busy regional trauma center, as well as a host of rundown factories, trucking facilities and fast-food restaurants. Rajendra Patel, owner of the hotel, said he chose the site because of its proximity to a large, well-traveled road and the fact that there was no other hotel in a two-mile radius. Most customers are relatives of local residents, he says.

Roger Bloss, chief executive officer of Vantage Hospitality Group, based in Coral Springs, Fla., which has 900 properties in North America and China and owns the Americas Best Value Inn brand, says there is a demand for such locations. "You'd be really surprised at how secondary and tertiary markets, in the last five years, have become extremely well received because people need to do business in those markets," he says.

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