Can NYC’s aging hotel boom find new life?: Q&A, part II

From the December issue: Even as tourists and business travelers flock to New York City in growing numbers, hotel operators face two looming threats — the dollar’s strength and a wave of new industry capacity. There are, however, signs of hope: the industry recently logged what some hail as an important victory in Albany over Airbnb. As per a law signed in October, people who advertise rentals for less than 30 days in multi-unit buildings could face fines of up to $7,500. Michael Barnello, chief executive of LaSalle Hotel Properties, told investors he sees the move as “a big [shot] in the arm for the hotel business, certainly in terms of the pricing.” Others are more dismissive of Airbnb. “It’s like a pimple on an elephant’s behind,” said Allen Gross, chief executive of GFI Capital Resources Group, owners of hotels including the Ace in Chelsea and the Beekman downtown.

For the second web installment of our Q&A, we turn to Jan Freitag of STR, and Mitchell Hochberg of Lightstone Group.

Jan Freitag

Jan Freitag
Senior vice president of lodging insight, STR

Do you think the new short-term rental law in New York City will significantly erode listings on Airbnb and hand hotels more pricing power?

I don’t know if Airbnb supply or lack of it will do anything to pricing. There is a limit to what guests are willing to pay. Airbnb makes the argument that it is growing the pie, that it is offering services to those who wouldn’t be able to afford a hotel room. The truth is probably somewhere in the middle. Airbnb provides a service for couch surfers. But if I’m a business traveler, I need to be in Manhattan, around the corner from my meeting locations.

Where do you see new hotels being added in coming years?

Look at where land prices are cheap; that is where hotels are going. Manhattan is getting very expensive, so people are looking across the bridges. The Queens and Brooklyn numbers speak for themselves. That’s where people want to stay on their leisure trips. In response, hosts of Airbnb are saying, let me offer them my extra bedroom.

Are we at the tail end of a decade-long boom?

New York City is always attractive and always will be attractive to [hotel] developers. So, although I hear that hotel construction financing is a little harder to come by, I don’t think we’re going to run into a wall. It will be a soft landing. The industry is self-regulating. When occupancies edge down, hotel developers will look elsewhere, nationally. The money is very fluid.

According to STR, through September, NYC occupancy was up slightly from a year ago. Where do you see occupancy rates heading in 2017?

Supply growth has continued unabated, but so far demand has kept pace. Will that continue going forward? That’s the billion-dollar question. Most likely, occupancy will soften and hoteliers will adjust prices.

What are some of the most surprising trends in the NYC hotel market?

Lack of pricing power given that occupancies are so strong. Nationally, it’s a very different story.

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Some NYC hotel developers are going to micro units. Does the trend have legs?

New York City hoteliers and guests both understand that the action is outside the room, a little like it is in Las Vegas. You try to give people a nice bed and a nice shower, but people want to be in the lobby, in the restaurant. The millennial traveler is used to smaller spaces, smaller apartments, tiny houses. But I doubt this will be a trend that changes the industry. It’s a special niche.

Mitchell Hochberg

Mitchell Hochberg
President, Lightstone Group

As a hotel developer, do you think the newly enacted law penalizing short-term apartment rentals in New York City represents a significant blow to Airbnb?

We think the new law is a knockout blow to Airbnb. They’re going to need to seriously recalibrate their approach in New York.

Do you think the law will be a boost in the arm in terms of hotel pricing?

While it may help slightly, we never thought that Airbnb had a significant impact, and that’s supported by the data. Using Airbnb numbers provided to the New York Attorney General’s Office, Goldman Sachs estimates only 30 percent of the occupied-room nights are actually hotel equivalents. According to a recent Smith Travel Research report, overall, there was no obvious smoking gun suggesting that hotels were being severely impacted by the growth of Airbnb.

Is there enough demand to meet the upcoming supply?

It makes sense that New York is in the midst of a huge hotel supply increase — it is a prime market, but it still has significant unmet demand. London has 31.5 million visitors annually, and 139,000 hotel rooms as of 2015. New York, on the other hand, receives 58.3 million visitors annually — a number expected to grow to 67 million by the end of 2021 — and yet it has only 107,000 hotel rooms. There’s plenty of room to grow.

What do you expect the biggest challenges will be in the coming year for the NYC hospitality sector?

Adjusting to the decrease of foreign travelers in 2016 due to the impact of the strong dollar.

Your firm is developing micro hotels. Can you talk about the logic behind that strategy?

Today’s traveler is focused more on location and their overall experience than on the size of their room and unnecessary amenities and services. Providing our customers with a smartly designed, albeit small, room that’s technologically advanced in a great location with energized social spaces is much more appealing. Travelers know they don’t need a banquet hall, spa or bellhop when they can have exceptional value in a modern, bold space. Moxy delivers that.