REPORT FROM THE U.S.—Raj Trivedi believes major urban markets like New York are the “final destination” for successful brands. It’s why La Quinta spent almost $50 million in downtown Chicago five years ago and is now actively pursuing partners and projects in Manhattan and other major markets.
“When a brand has become successful, has created distribution that is recognized by consumers first and developers in terms of a return on investment, that’s when you see growth in high-barrier-to-entry markets,” said the franchise and chief development officer for La Quinta Inns & Suites, which owns and franchises more than 800 hotels in North America.
It’s the same path brands like Holiday Inn Hotels & Resorts and Hampton Inn took, Trivedi said, and why a new wave of brands that began on the sides of roads and moved into the suburbs are now aggressively targeting markets like Manhattan.
La Quinta isn’t alone. The Best Western Premier Herald Square Hotel—a $30-million, 94-room new-construction project—is on pace to open in April just blocks from the Empire State Building. Even the traditional roadside brand Motel 6 has found success in urban locations like San Francisco, San Diego and Washington D.C., and is now focusing on places like New York, said G6 Hospitality CEO Jim Amorosia.
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The Best Western Premier Herald Square Hotel |
“Manhattan is the center of the universe to many,” said Mark Williams, Best Western International’s VP of North American development. A record 52 million people visited New York last year, spending $36.9 billion, according to NYC & Company, the city’s marketing and tourism organization. Annual occupancy for the city was 83.7%, according to data from STR, parent company of HotelNewsNow.com.
The exposure, to consumers and ultimately hotel developers, is why Trivedi, Williams and Amorosia all want to grow their brands in major markets. But there are plenty of challenges, too. “Manhattan is not the same as Manhattan, Kansas,” cautioned Vijay Dandapani, president and COO of Apple Core Hotels.
Cutting to the core
Dandapani’s company owns and operates five select-service hotels in midtown Manhattan, three of which once flew the flags of national brands including Red Roof Inn, Comfort Inn and Super 8. Those three are now unflagged, thriving as true budget boutique hotels, he said.
His company had the infrastructure, including its own central reservation system, to allow for his independent efforts. “We do a lot of things not many small companies do, so we can keep our costs really low and still drive traffic,” he said. “And with a million bucks in franchise fees and up, the bang for the buck was not there. It was simple economics that drove the decision. We couldn’t get the rates we wanted with those names, and we didn’t want to step up to Courtyard (by Marriott) or Hilton Garden Inn with even higher fees.”
Dandapani still does have two branded properties, the Ramada Eastside and the La Quinta Inn Manhattan. He said he’s considering the independent route with the Ramada, but he did just sign a second 10-year contract to remain with La Quinta because of its brand contribution and national advertising.
Flexible solutions
La Quinta has urban properties in New Orleans and Seattle and is looking to add more in Manhattan as well as break into the Houston, Philadelphia and Baltimore markets. The key to urban development, Trivedi said, is being flexible.
“All of those products are not prototypical,” he said. “Yes, we will be flexible on footprint and on the size of rooms as needed, but we are not going to compromise on guest experience. That’s the one thing that has to remain constant and consistent, from downtown to a roadside location.”
The 241-room Chicago property has already exceeded expectations. The hotel reached its projected earnings before interest, taxes, depreciation and amortization five-year goals almost two years ahead of schedule, Trivedi said, and with a market share more than 100%, it’s proving competitive against higher-end properties.
Jaz Patel, president of management company Letap Group and the lead developer of the Best Western Herald Square, knows all about the barriers to enter markets such as Manhattan. His 17-story, 94-room hotel—just six rooms a floor—is being built on a 35-by-100 square-foot lot. He hoped to build more vertically but couldn’t secure the air rights from his taller neighbors.
Patel’s vision was to create a “funky, upscale boutique,” and Best Western Premier was his first choice for branding because of the success of his Best Western in Long Island City, New York, as well as the brand’s flexibility on design and lower membership fees.
“That Long Island City property is just four miles away, but it’s like building in a different country,” said Patel of the Manhattan challenges. “Buying the land and putting together the capital for just 94 rooms was a lot of work. Then you have to deal with the Department of Buildings, permitting and all that.”
For Best Western, this will be the brand’s first Premier location in New York and one of the brand’s flagship locations when it opens. The membership organization, with more than 4,000 hotels in 100 countries, launched its Plus and Premier designations in North America two years ago for primarily this purpose.
“There will be less confusion now,” Williams said. “With everything under one name, we’d go into high-barrier markets with the standard Best Western name and there was some sticker shock because guests were used to highway properties or secondary markets.”
Because of that, as Dandapani suggested, developers couldn’t drive enough rate at similar brands to justify the higher development costs.
Sticking to the basics
Motel 6 hasn’t taken a different or upscale approach to move into urban markets.
“We understand the complexities of an economy brand in an urban setting, but our core business model—a clean, comfortable room and great service at the lowest price of any national chain—doesn’t mean we have to be cheap,” said Amorosia, whose brand has more than 1,100 properties in the U.S. and Canada. “We can still be the lowest price amongst our competition.”
Motel 6 has proven it can work at corporate-owned assets in cities like San Diego; Memphis, Tennessee; Las Vegas, Salt Lake City, Utah; and franchised ones in Hollywood, California; San Francisco; Atlanta; Portland, Oregon; Brooklyn, New York; Baltimore; and Washington D.C. The formula for urban growth will continue to be primarily through conversion of existing assets using its flexible Phoenix design. That, in conjunction with Motel 6’s amenity-light model and reduced labor costs, can add up to enough profit for owners, Amorosia said.
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| The Motel 6 Hollywood |
“I’ve had great success in urban areas,” said Harshad Patel, president and CEO of CKP Investment, which owns and operates 23 Motel 6 properties, including the one in Hollywood. “There are some challenges, but it can be rewarding.”
The Motel 6 Hollywood was Patel’s first in 1997, an independent he acquired in 1996 and converted. He hasn’t stopped since, opening properties up and down the state of California mostly through conversion and across the country, from interstate locations to urban centers like downtown Atlanta.
His goal is to reach 25 by year’s end, and if given a choice, he’d prefer a major urban market to a secondary one because of the profit potential. If a hotel can be bought at the right price and converted, Patel said, the additional demand from being in a major market combined with less branded economy competition creates an ideal situation.
“The major challenge is many guests aren’t ready to pay the rates needed at an urban property,” said Patel, because of the lower prices many are accustomed to at interstate and suburban locations.
He’s thrilled Motel 6 is targeting major urban markets. Consumers will become more aware of the brand as an urban option, he said, and be willing to pay those higher rates. That’s exactly why Amorosia and his counterparts from Best Western and La Quinta are pursuing opportunities in places like New York.