NEW YORK CITY—Lightstone Group has 2 billion reasons to be confident in the future of the hotel industry.
The company in February announced plans to invest $2 billion in the development of hotels in the United States. Half that total will be used to help jump-start Marriott International’s Moxy brand, which has one open property in Milan.
In emailed comments to Hotel News Now, Lightstone President and COO Mitchell Hochberg said the mix of new builds and conversions would take place during the next 24 months. In addition to Moxy, Lightstone officials will look to develop other select-service hotels. Hochberg declined to identify which particular select-service brands might be involved.
“From an investment perspective, select-service hotels like Moxy provide more stability within their daily operations and are less susceptible to market changes within the economy,” Hochberg said.
Capital for Lightstone’s plan will come from the company’s balance sheet as well as from institutional preferred equity. Hochberg said officials believe the industry still has plenty of room to run.
“We believe we are in the fourth or fifth inning of a nine-inning game,” he said of the cycle. Diversified real estate company Lightstone has a total portfolio valued at more than $2 billion, including 3,500 hotel rooms.
Lightstone’s investment plans come about eight years after the company acquired Extended Stay America as part of an $8-billion deal. The debt taken on post-acquisition—$7.4 billion from a Blackstone affiliate—hamstrung Extended Stay America, which filed for Chapter 11 bankruptcy protection from creditors in November 2009. ESA’s comeback from the bankruptcy culminated in its $565-million initial public offering in November 2013.
“That’s in the past,” Hochberg said of the ESA bankruptcy. “What is more important is how the nature of the hotel industry is changing. A perfect example of that is Moxy—moderate-tier, impactful hotels designed to attract millennial and foreign travelers in key markets.”
Lightstone CEO David Lichtenstein was not available for comment.
Moxy build-out
Lightstone intends to build four Moxy-branded properties in New York City and one each in Los Angeles and Miami. The hotels are expected to open in 2017.
Hochberg said he is not concerned about devoting such a large pot of money to a brand that thus far has one open property.
“Not at all,” he said. “We have followed the success of other Marriott brand launches and they have never had a failure.”
Marriott and the parent company of Ikea teamed to introduce the 3-star Moxy brand in 2013. At the time, brand executives said they had plans to add 150 franchised hotels in Europe over the course of 10 years, targeting ground-up development in Germany; Austria; the United Kingdom; Ireland; Belgium; Italy; the Netherlands; Denmark; Finland; Norway; and Sweden.
In addition to the open Milan property, Moxy’s website identifies openings will happen soon in Berlin, Munich and Frankfurt, Germany; London; and Oslo, Norway.
Eric Jacobs, chief development officer for Marriott’s select-service and extended-stay brands, said the company has eight or nine “solid” Moxy deals with Lightstone that are working their way through the development process. “They’re pledging quite an investment with us on this,” he said.
Jacobs said Marriott purposely has taken a more measured development approach with Moxy as part of a larger plan to attract millennial guests. He said the brand has eight approved projects in the United States and 16 Moxy hotels under development in Europe.
“We’re watching a consumer that skews younger,” Jacobs said during a telephone interview with Hotel News Now. “How do we engage with them in the early part of their business travel life and engage so they grow with us to our brand portfolio?”
He added: “Sometimes it’s not always about quantity. There’s value in scarcity. We’re trying to engage with a traveler that likes unique hotels, and if you commoditize it too much, you might lose some of that uniqueness.”
Moxy’s distribution strategy is different in the United States than it is in Europe, Jacobs said. European development is broader, with hotels placed in first, secondary and tertiary markets. In the U.S., distribution is focused more on urban markets.
“You have to look at the daytime business density,” he said. “Where are those customers? Where do they reside in those cities?”
There have been discussions to bring Moxy to other global regions, such as Latin America and Asia, Jacobs said.
Hochberg said Marriott’s expertise with its brands is a big reason why Moxy is so attractive to Lightstone.
“With Moxy, we think they have nailed it,” he said.