REPORT FROM THE U.S.—Commonly appreciated by travelers for its authenticity as a historic destination, New England is slowly evolving from a heavily independent hotel market into one led more by the major brands.
“New England by nature has a lot of independent properties,” said Ken Ford, VP of New England Hotel Realty of the region comprised by Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. However, it’s the Hilton Worldwide, Marriott International, InterContinental Hotels Group and Starwood Hotels & Resorts Worldwide properties that are dominating the market, and they have been for quite some time, he said.
The high cost of real estate coupled with the lack of financing is keeping the smaller franchise brands from gaining much exposure in New England, but the major brands have been better able to overcome those hurdles that have presented themselves since the downturn, Ford said.
The market is gaining more travelers every year as it continues to add brands in or near high-demand areas such as coastal Maine, Cape Cod in Massachusetts and Newport, Rhode Island, he said. Those who participate in loyalty programs and have the opportunity to use points or increase them in the popular New England destination are the travelers helping drive the demand.
And while New England has seen boosts in performance because of the supply added by the major brands, the challenge to remain competitive is hitting the independent properties hard. Ford said it is imperative for owners of the independents to put money back into their hotels if they want to compete against the brands.
Even on the transactions side, buyers are showing preference to brands, according to Earle Wason, owner of Wason Associates, a hospitality real-estate brokerage firm based in New Hampshire.
“It’s a struggle to sell hotels in the markets unless you’re selling to the REITs and there is not a lot of REIT-buying activity in New England right now. The most active REITs are limited to buying Fairfield (Inn & Suites) and Marriott products, and right now there aren’t many for sale,” Wason said.
On top of that, “(REITs) don’t really like one-off sales. They like portfolios,” he added.
Case in point: DiamondRock Hospitality Company acquired the 258-room Hilton Burlington in Vermont and 362-room Hilton Boston as part of a four-hotel portfolio from affiliates of Blackstone Real Estate Partners VI for $495 million.
Wason said there has not been much interest to sell this year although the market is attractive to buyers. “The interest rates are very favorable … Buyers come in at a low capitalization rate, and they still get a pretty good price.”
The few transactions Wason’s team has completed within the past year have been in the mid-market range, he said. “And that’s probably where most of the activity has been.”
So far this year, the market has seen a handful of sales. In addition to the Hilton Burlington and Hilton Boston deals, the Providence Biltmore in Rhode Island sold for $16 million on 30 May to Finard Conventry Hotel Management.
The increase in average daily rates could attract more buyers to the market, Ford said.
Boston, in particular, has gained a lot of pricing power during the past two years because of the strong demand. The ADRs in the metro area push out to the suburban markets because there has not been a significant amount of new hotel supply in Boston to meet the growing demand.
The strength of the Canadian dollar also continues to help boost hotel performance in New England, he said. “There’s been a lot of Canadian traffic to Massachusetts and the Maine coast.”
During the month of June in New England, occupancy increased 4% to 71.3% in comparison to the same month last year, according to data from STR, parent company of the Hotel Investment Barometer. ADR was up 6.8% to $134.11 and RevPAR rose 11.1% to $95.61.