Four years ago, downtown Manhattan-based Alfa Development—which had focused primarily on commercial and residential real estate—had a chance to expand into the hospitality market. When plans to turn a building on Mott Street into a hotel fell through, founder and CEO Michael Namer then looked north to the Hotel Grand Union on East 32nd Street.
“We had retail, we had condominiums and we had rental properties for offices and for residential, but there was a missing link,” Namer said. Due to zoning restrictions in its target neighborhoods, the company was unable to build something new, and opted instead to acquire an existing property.
Picking up the Hotel Grand Union in 2012 as part of a 1031 exchange with one of the company’s SoHo properties, Alfa carefully took its first steps into the hospitality world, working with Marshall Hotels & Resorts as the operator of the budget hotel. At the same time, the team began considering what it could do with the landmarked building. “We went ahead with plans to restore and to renovate the interior, and we started around February of 2015,” Namer said.
After $18 million in renovations, the renamed and reinvented HGU New York reopened its doors in June 2016 as an upscale boutique hotel. “We approached the process in a very different way than a typical hotelier would because we’re residential builders,” Namer said. “We’ve put a lot of our style and branding into our rooms—and sure enough, people feel that it’s very residential.”
Independent Boutique
Alfa decided to keep its reinvented hotel independent rather than partnering with a brand to provide standards and support. “In New York City, the business of a boutique hotel is much more lucrative than a branded hotel,” Namer said. “You have a much higher [average daily rates] than in a branded hotel just because of the vibe and the ability to be more bespoke with the clientele. I know a lot of people shy away from that because as investors, they want to make sure that the bankers are going to fund their endeavors, [so they] go to a branded hotel for the flag.”
While branded hotels get a certain traffic, Namer said, the lenders who supported HGU’s recreation believed that the reason boutique hotels thrive is that “their matrix is much better than the flagged hotels in New York City because there’s such a high amount of money that you have to pay, percentage-wise, to have the flag.
“We want to be a New York hotel—very much like the Algonquin was in the ’20s and ’30s—that attracts people to a hotel culture, and a way to essentially have a social life in the hotel,” Namer continued. “We approach the whole hotel business in that fashion—and so far, so good.”
But creating a hotel is different from creating other types of real estate. “We’re very much used to the bricks-and-mortar part of business, and we can do that in our sleep, but when you talk in the same sentence about bricks, mortar and pillows, it’s kind of a whole different aspect,” Namer said.
Going Green
Another challenge was finding the right balance of making the hotel both appealing and eco-friendly. “We are the largest builders of sustainable residential buildings in Manhattan, and we’ve been doing this now for over 10 years,” Namer said. When that value was applied to the hotel, however, Alfa did not want to implement the traditional strategies of leaving towels and linens in guestrooms for multiple days. “You want to reduce your footprint by reducing energy use,” he said. “That's what matters in terms of being a green building.” To that end, HGU uses an energy-efficient air conditioning system, and the LED guestroom lights cannot be turned on without the room key. In terms of reducing water usage, guestroom toilets use 1.25 pounds per flush and the showers use 30 percent less water than traditional models.
The initiative hasn’t only been effective environmentally. “We just got our first bill from Con Edison,” Namer said. “We used to pay $12,000 a month for energy for this building. Now it’s $3,000 a month.”
Looking ahead, Namer said that the Alfa team has been talking about growing the company’s hospitality portfolio. “Any opportunity we have, we’ve jumped on to see if we can get into that particular area,” he said. “I think that we’re happy the way the hotel turned out, and the work that we just did.”
Alfa, Namer said, has been building in New York City for decades, and the family business is on its third generation. “We bring a different kind of style in thinking we’re residential developers in downtown Manhattan,” he said. “We understand what makes New York tick, and what people want to see, and why they move into those areas...And downtown, it’s about art, it’s about music, it’s about fashion—all the great things that New York is about.”