NEW YORK—The underserved Brooklyn hotel market has become a hot spot for new development, although the window of opportunity could soon be coming to a close.
There are four hotels under construction in the New York borough and an additional six in the final planning stage of the development pipeline, according to STR, parent company of the Hotel Investment Barometer. www.str.com
The product is split between chains such as La Quinta Inns & Suites and independents such as the Hotel BPM and the Hotel 718.
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Dan Lesser, LW Hospitality Advisors |
“You’ve had a tremendous flurry that’s gone in terms of new development,” said Daniel H. Lesser, president and CEO of LW Hospitality Advisors, based in Manhattan.
The building boom was spurred primarily by demand. Brooklyn, which has averaged more than 70% occupancy and revenue-per-available-room growth of 15.2% April year to date, according to STR, is an “incredibly underserved” market, Lesser said.
There’s simply not enough hotel supply to accommodate the demand, he added.
What’s more, it’s far less expensive to develop in the New York borough compared to Manhattan, Lesser said.
But the recent activity, if it continues at its current pace, could lead to oversupply, he said. Indeed, there are an additional 14 projects in the planning stage of development, according to STR.
“There’s an awful lot of proposed hotels in various stages in development,” Lesser said.
“They’re going to diminish the economic feasibility of those behind them, depending on where you might be in the pecking order in terms of development,” he continued. “If it’s a dream in your head, you’ll probably want to think about when you want to time something like that.”
Demand drivers
With an opening date slated for August, the 76-room Hotel BPM has a head start on much of that competition, according to the property’s founder and “visionary” DJ Bijal.
Hotel BPM is typical of the stylish independent boutiques set to open in Brooklyn. The borough, once regarded as an unfavorable step-sibling to more upscale Manhattan, has seen a revitalization of late that’s transformed it into one of New York’s trendiest areas.
“Just the type of brand that we are, I feel that Brooklyn is a very ideal market for us,” Bijal said. Hotel BPM will feature a customized music playlist by the disc jockey, as well as a stylish lounge area, he added.
Asked if he was concerned about the new competition set to enter the playing field, Bijal said new hotel supply will only bring new attention and business.
“It’s good for Brooklyn as a whole,” he said. “People realize that Brooklyn is no longer that image that they had of it before. It’s a lot safer; it’s a lot nicer.”
Other buzzworthy independent properties that have opened recently in Brooklyn include the Wythe Hotel and the King & Grove Williamsburg, which King & Grove acquired the 64-room hotel from JV Graves Hospitality and KSK Construction for $33 million, or $515,625 per key.
The Williamsburg sale was likely an exception rather than the rule, Lesser said. For one thing, there is not very much hotel stock in the borough, let along hotel stock that’s for sale. For another, the market primarily comprises lower-tier supply that would never attract such a high purchase price.
Investors looking to gain a presence a Brooklyn would have an easier time building from the ground than trying to buy their way in at present, he said.
And for the time being, that investment should yield dividends, Lesser said.
“It’s a growing, expanding area, and it’s part of New York,” he said. “New York is perceived as the capital of the world, and everybody wants to be in New York. Foreign capital is still coming here in droves.”