Developers Oleg Pavlov and Seth Schumer just finished construction on two buildings in Manhattan. Now comes the hard part, as they try to get a new hotel brand off the ground.
The duo, executives at London-based Quadrum Global, initially planned to team up with John Pritzker’s Commune Hotels & Resorts to open properties at the sites under its micro-unit Tommie brand. Instead, they parted ways with Commune -- and its name recognition -- and are starting their own hospitality firm, Arlo.
The partners are squeezing 575 rooms, each no more than 165 square feet (15 square meters), into the two buildings in an effort to maximize profits in a market where high land costs and a surge in room supply are eroding operators’ pricing power and eating into developers’ returns. This year through June, average nightly room rates in New York City fell 3.3 percent from the same period in 2015 to $237.93, and revenue per available room -- a performance metric used by the hotel industry -- dropped 3.2 percent, according to lodging-data firm STR.
“To make a project viable, one has to either charge significantly more money for the same room by positioning it as luxury, or one has to fit more rooms on the same land plot,” Pavlov, Quadrum’s founder and chief executive officer, said in an interview. “Our guests, we hope, will appreciate that the room is small but that it has everything they need. We essentially replicate a boutique hotel in a much smaller package.”
The first Arlo, in the Hudson Square neighborhood, near the mouth of the Holland Tunnel, will open Sept. 6, in time to host guests for New York Fashion Week. The second, at 11 E. 31st St., will follow about a month later. Quadrum has joint-venture partners on both properties.
New York is leading the country in new hotel supply, with 7,100 rooms being added this year and 6,700 more coming in 2017, said Patrick Scholes, a hospitality analyst at SunTrust Robinson Humphrey Inc., citing data from Lodging Econometrics. In 2018, an additional 7,100 rooms are projected to come to the market, he said.
Demand hasn’t kept pace as companies scale back on corporate travel and the stronger dollar makes New York more expensive for international tourists, he said. Short-term rental sites such as Airbnb Inc. are piling even more choices onto the market.
“That’s a big headwind,” Scholes said. “If you have any hope of raising your rates, you’d better hope and pray there’s a demand uptick.”