The Lam Group opened the Aloft New York Brooklyn in June 2011.
New York – Manhattan may be king, but Brooklyn is no one’s jester. And hotel developers are taking note, crossing the bridge and backing projects that are commanding rates, basking in occupancy and generating robust revenue per available room not far off from their across-the-river brethren.
Hung Luk, COO of the Lam Group, a New York City-based real estate investment group, first began pushing into Brooklyn near the city’s Barclays Center, home to the NBA’s Brooklyn Nets, and host of events such as musical performances. After the economic downturn, multiple residential and retail development projects in the area ground to a halt, with many of those sites ripe for hotel development.
“In the past decade there has been an influx of development in downtown Brooklyn, in the direction of the Atlantic Yards area, for both hotel and residential apartments,” Luk said. “In the early 2000s there was a lot of scarcity, and prices were through the roof.”
The Lam Group’s most recent Brooklyn opening was the Hotel Indigo last October. The Indigo was purchased from another developer after being 80 percent completed, joining the Aloft and Sheraton hotels as the Lam Group’s third hotel in Brooklyn.
Downtown, Williamsburg and Greenpoint are areas of Brooklyn that stand out for hotel development.
Other Brooklyn hotspots include Greenpoint and Williamsburg, the latter already a beacon for hotel development with such properties as the Wythe Hotel (where rates easily start and exceed $250 per night) and the King and Grove (ditto on rates).
Justin Palmer, partner at the Synapse Development Group, saw Brooklyn’s popularity with residential developers shoot up over the past 36 months, and saw an opportunity for commercial and hotel development to complement the influx of residents. Specific attention was paid to Williamsburg, where Synapse purchased a development site in November of 2013 in order to build a 100-room hotel, as well as a 10-unit residential building.
“Williamsburg is under-supplied in hotel rooms, and is one of the only areas in Brooklyn right now with strong demand drivers from both a corporate perspective as well as transient travelers,” Palmer said. Palmer also said that, like Manhattan, developments near subway stations are key.
According to Palmer, development on Brooklyn properties primarily focuses on the guestroom and making it appeal to international travelers. “We rely on strong national and international distribution to fill rooms from Monday through Sunday, and the types of brands that can do that best in Brooklyn are midscale,” Palmer said. “We also think there is tremendous value in providing a unique F&B component to the area, given the innovation that has occurred in food culture in Brooklyn.”
Guestrooms must be designed to appeal to the international and domestic travelers that come through Brooklyn.
Synapse was drawn to Williamsburg after tracking the large focus on residential development taking place in that area. “We understand that market very well,” Palmer said. “There are a lot of interesting restaurants, bars and prime retail all within walking distance from transportation. People just want to be there.”
Albert Picallo, managing partner at Synapse, sees Brooklyn’s transformation into a global brand as the area’s best selling point. “When you are abroad and say you are from New York, people tend to ask about Brooklyn,” Picallo said. “They ask about the Atlantic Station area near the Barclays Center and they ask about Williamsburg. Williamsburg has become a lifestyle choice for people with the means to dine or live anywhere in the city.”
Picallo believes a demographic shift that has been taking place in Brooklyn for the past decade is past the tipping point in some neighborhoods, including Williamsburg, which will soon result in changes to pricing and room rates. “Land pricing in Brooklyn is still lower than Manhattan, while rates and rents continue to catch up to Manhattan,” Picallo said. “What is going on in the city has us excited economically, we’ve seen land prices surge in Williamsburg since we put this deal in contract.”
In early December 2013, InterContinental Hotels Group acquired an asset in Brooklyn near the Barclays Center for the development of one of its Even Hotels. The 13-floor, 204-room hotel is expected to open by mid-2015 alongside two other Even Hotels in midtown Manhattan.
The success of the Barclays Center in downtown Brooklyn has assisted with development in the area.
The Even Hotels brand targets wellness-minded travelers, and Adam Glickman, director of Even Hotels, is looking to use the Brooklyn development to gauge how the brand performs outside of Manhattan.
“If you look at Brooklyn as a submarket of New York, it is the third largest business district of the city,” said Glickman. “Neighborhoods there have business and retail centers popping up everywhere. With the growth of the Barclays Center, hotels want to be at the forefront of that activity.”
While developers are able to get tax incentives for developing in Brooklyn as opposed to Manhattan, Luk says that Brooklyn and Queens are still unable to receive the same banking support as the island. “Manhattan is more resilient than other markets,” Luk said. “There is more tourism, and Brooklyn gets that, but not compared to Manhattan numbers.
“There are many one and two-story retail buildings that are underutilized and can convert to create an advantage for development, but nothing is a guarantee for success, which is why banks are a little more cautious of the outer boroughs,” he continued. “There are also a lot of parking lots. Are they the best sites for a hotel? Not necessarily, but when many developers take the fringe areas of a city, they can do well, and the fringe areas are next.”
Luk believes that Brooklyn has a strong profile right now, which is helping it create its own niche—an alternative for surplus business from Manhattan. However, Luk said the city still needs to finish establishing itself, believing it is not sustainable to build a business model centered on capturing the spillover of Manhattan.
“Downtown Brooklyn is still a neighborhood that is emerging, it is not a 24/7 location yet, whereas Williamsburg has emerged as a neighborhood that competes with many markets in Manhattan” Palmer said. “We found that in the outer boroughs there is still a lack of hotel sites near transport hubs, and a lack of commercial development near transport hubs in general that also have the retail and residential infrastructure to support a 24/7 neighborhood. Many institutional lenders are coming over to Brooklyn from Manhattan to do business, which is a telltale sign that they want exposure to downtown Brooklyn and Williamsburg.”
“We haven’t lost interest in Brooklyn,” Luk said. “Fifteen to 20 years ago, when Marriott first came to the town, everyone was confused. Why would they go there? Now there is an influx of development and interest, and people can see why.”