Hotel groups cajole developers, customers with affordable luxury

Marriott International opened the AC Hotel New Orleans Bourbon/French Quarter Area in November.
Marriott International opened the AC Hotel New Orleans Bourbon/French Quarter Area in November.

Marriott International opened the AC Hotel New Orleans Bourbon/French Quarter Area in November. 

National Report – Luxury is back. That’s according to the most recent data from PKF Hospitality Research showing RevPAR for the luxury-lodging segment jumping almost 7 percent in 2015.

And while it’s clear that any setbacks the luxury tier suffered during the downturn are a distant memory, few new luxury projects are under construction, given their high cost relative to the construction costs associated with other lodging segments. Partly in response, a new take on luxury lodging has sprung up, a variation on a theme loosely referred to as “affordable luxury.”

Clearly, there’s no one definition of the term, but that hasn’t kept major hotel companies like Marriott International, Wyndham Hotel Group and Hyatt Hotels Corp. from introducing brands they feel will help satisfy this unmet consumer need. While less expensive for developers to build and consumers to book than the usual luxury property, these hotels are still distinct from the usual mid-price lodging product in design and ambience.

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“Our market research has identified an independent traveler who is looking for a different type of experience than the one offered by traditional hotels, where consistency has been highly valued,” said Eric Jacobs, CDO for select-service and extended-stay hotels in North America at Marriott International.

At least two of Marriott’s most recent brand entries—AC Hotels by Marriott, presently expanding in the U.S., and Moxy Hotels, intended, at least initially, for Europe—are aimed to target this independent traveler.

As Bill Hall, brand SVP for Wyndham Hotel Group, told it, the group’s TRYP brand speaks to that personal experience. “The idea is to offer an opportunity for each guest to connect with the hotel in his or her own way,” Hall said. TRYP originated in Spain and has since expanded to other markets, including the U.S.

BYE TO BANAL

More than the cookie-cutter brands of yesterday, these brands are much more specific to the destination in which the hotels are located. “Each hotel is meant to fit within its market. We’re talking about a new target traveler, one that is less brand-focused overall and much more community-focused instead,” said Julianne Smith, SVP of two of Hyatt Hotels Corp.’s new brand entrants, Hyatt Place and extended-stay Hyatt House.

Hyatt Hotels Corp. has entered the robust New York City market with Hyatt Place New York/Midtown-South.

Hyatt Hotels Corp. has entered the robust New York City market with Hyatt Place New York/Midtown-South.

Paul Sacco, CDO for developer and manager TPG Hospitality, said success for these hotels is contingent on their locales. “You’re less likely to see a prototype, however, because each hotel within the brand will be different, which raises the question—critical to a developer—of knowing upfront the cost per key to get out of the ground,” Sacco said.

The appeal is clearly to a younger demographic, specifically the frequently cited millennial generation, noted Sumner Baye, president and partner of development consultant International Hotel Network, LLC. “Though the jury is still out on what the millennials will really want in a hotel stay as they mature, despite all the speculation,” he said.

The terms “affordable luxury hotel” and “hip budget hotel” are often used interchangeably, Baye added. “Though here, too, the idea of what ‘affordable’ and ‘budget’ mean are relative values, market-by-market. In a market like New York, for example, ‘budget’ could easily mean an ADR of $250 per night,” he said.

HAUTE LOOK FOR LESS

Contemporary, stylish design is very much a part of the affordable luxury concept—in guestrooms as well as public spaces. Sacco foresees a return of the pool, “but on the roof and not for swimming, but as a design element.”

Hyatt Hotels Corp. has entered the robust New York City market with Hyatt Place New York/Midtown-South.

Jacobs draws a parallel from the fashion world between brands like AC by Marriott and Moxy and such popular global retail brands as H&M and Zara. “The clothes they sell are fashionable, but at a reasonable price. These hotel brands offer a similar value proposition,” Jacobs said, adding that, “Millennials and other consumers today want more for their money.”

Given the emphasis on design, connection to local communities, young demographic and lack of brand-wide prototype, it makes sense that these brands are paying special attention to downtown urban markets. As an example, “AC by Marriott doesn’t belong in a suburban office park. We already have Courtyard, SpringHill and Residence Inn for those locations,” Jacobs said.

A focus on urban markets also opens the door to adaptive reuse projects, including conversion of former banks, warehouses and other types of commercial—often historic—structures that are typically more interesting. “Repurposing these buildings can be a challenge, but the results can be highly rewarding,” Hall said.

The TRYP Times Square was created out of a former factory space in New York’s garment district neighborhood.

The TRYP Times Square was created out of a former factory space in New York’s garment district neighborhood.

For example, the AC Hotel New Orleans Bourbon/French Quarter Area, the first AC by Marriott in the U.S., opened in November and is an adaptive reuse of the historic Cotton Exchange building. The first TRYP in the U.S. was created out of a former factory space in New York’s garment district neighborhood.

Included in this focus on urban markets would be emerging neighborhoods, typically those close to the downtown core. They’re just becoming viable for hotel development, possibly former industrial neighborhoods that may already be attracting artists, galleries, clubs and a restaurant scene. “These would be burgeoning areas that a few years down the road will be flourishing,” Sacco said.

Among their other attributes, these hotels—whether historical adaptive reuse or ground-up construction—would feature the latest technology bells and whistles, according to Smith. “The guests we’re targeting are interested in mobile check-in, for example,” she said.

“Where self-service check-in is available, we find guest satisfaction scores go way up. Self-service will become the standard the way it has in the airline industry,” Jacobs said.

Complimentary Wi-Fi will be a requisite, he continued, and guests will demand adequate bandwidth.

In terms of amenities, brands and operators will become especially attuned to what consumers are prepared to pay for and where there will be push back.

Considering that multi-unit owners may already own Marriott, Wyndham or Hyatt brands in a market (or other brands are not available due to franchise areas of exclusivity), the affordable luxury brands may be the way to proceed. “It allows these owners to continue to grow their portfolios in these cities,” Jacobs concluded.

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