New York City continues to be the center of the hotel universe with ongoing strong development and performance. Supply is growing as is demand to fill those new rooms.
Since August 1993, Vijay Dandapani has been instrumental in Apple Core Hotel’s growth and development in New York Cirty, including acquisitions, seven hotel renovations and the brand de-flagging of three properties, The Hotel @ Times Square; nyma, the new york manhattan hotel; and Broadway @ Times Square.
HOTELS spoke recently spoke with Dandapani, president of Apple Core Hotels, currently owners and operators of five hotels around the city, to get his take on the New York City market, as well as its issue and opportunities.
HOTELS Magazine: What is your current take on the New York City hotel market?
Vijay Dandapani: It’s raining hotels. Look on almost any block and a new hotel is going up. There is no dearth of product coming up in just about every geographic niche of New York City. This goes beyond Manhattan with Brooklyn, Brooklyn Heights, Long Island City and even the Bronx seeing new hotels. That was unthinkable seven years ago. We are getting hotels in Harlem with Colombia University expanding massively, so it is a submarket that is need of another hotel, if not two more. Overall, the situation is very positive.
HOTELS: Will the new supply be absorbed?
Dandapani: Yes, subject to certain trajectories being there, and that is a big caveat. We are seeing bountiful growth in tourism never seen before, and supply has been absorbed and occupancy has been steady. Even without inflation adjusted terms, RevPAR is not where it was pre-Lehman. That said, capital stacks are so easily put together these days, and development moves faster than some might want.
But I am far from being a pessimist. The biggest thing keeping us afloat is owners have locked in long-term rates with unbelievable terms – both for development and refinancing, and that will keep us out of trouble without a major catastrophe.
HOTELS: What are your thoughts on the limited-service hotels coming into Manhattan and doing so well?
Dandapani: The city is a big enough market for all of these brands. This segment should have been filled in earlier. In the early ‘90s I started with a few and I found it to be very rewarding as distribution systems were there to tap the market.
HOTELS: What about the proliferation of lifestyle hotels in New York?
Dandapani: Lifestyle has a certain appeal in the city and certain submarkets such as the Meatpacking District. But the biggest thing affecting me is not lifestyle or branded hotel but services like Airbnb (online services that provide platforms for individuals to rent out spaces in their homes). Contrary to what people say, they are hotel lodging directed at a different demographic than the promoters say they are. Most patrons are 40-plus traveling with teens. I don’t seeing a lot of young people staying in apartments. I have no data but I do have a lot of anecdotal information. My hotels are more affected as that is market we cater to.
On the plus side, there is a boom in middle-class growth from outside the U.S. New York City is a gateway and a lot of my business is international and the new emerging middle-class is value conscious, and they look for what we offer with a bundled offer (free Wi-Fi access, nationwide and toll-free calling and daily continental breakfast).
HOTELS: Should something be done about Airbnb, and the likes?
Dandapani: They are violating the illegal hotels law in New York. They like to think they are disruptive, but they really are an illegal operation taking shelter under communications and decency act, which applies to groups like Craigslist, where they are not responsible for content and don’t do a lot with it. Airbnb does a lot with the content. They take commissions, intermediate disputes, etc. They have deep pockets and hired the best lobbyists to overturn the act. It will be a marathon rather than a sprint in addressing this issue.
HOTELS: What development opportunities remain in New York City?
Dandapani: Hostels is one, I think. It is something I looked at in early ‘90s. Hostels with a flare have potential. I think there is room for certain submarkets of Manhattan that offer more than steel-framed bunkbeds and oatmeal in the morning.
HOTELS: What are the plans for Apple Core’s portfolio?
Dandapani: We have been too conservative. We are very strong financially. I mentioned the Bronx, and we have looked there and in Harlem, but we haven’t found the right site. We might look more actively at a hostel in next few months.
HOTELS: What do you see as the biggest challenge right now?
Dandapani: Disintermediation and what it has caused. People build new hotels predicated on certain rates, yet they are selling rooms for US$199 when the model says US$350-plus. As a result, should there be a downturn we will see more problems with properties like these.