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LI hotel construction surges on strong occupancy, tourism

Riverhead Realty Management CEO Lee Browning Sr. walks

Riverhead Realty Management CEO Lee Browning Sr. walks the site of a new extended-stay Marriott Residence Inn in Riverhead on Sept. 23, 2016. Photo Credit: Randee Daddona

Four new hotels with more than 500 rooms are expected to open next year on Long Island, as strong occupancy rates and rising tourism spending create a wave of lodging construction.

The hotels, one in Nassau and three in Suffolk, are a $35 million, 165-room Hilton Garden Inn expected to open in Port Washington in March; a $24 million, 131-room extended-stay Marriott Residence Inn, to open in April in Riverhead; a $16.8 million, 125-room Courtyard by Marriott in Central Islip opening in the second half of 2017; and a $21.6 million, 124-room extended-stay Hilton Homewood Suites in Ronkonkoma planned to open late next year.

The surge comes after two hotels opened earlier this year — a SpringHill Suites in Carle Place in April, and a Courtyard by Marriott in Westbury in July — and none in 2014 and 2015.

All six of these hotels offer lower prices, and fewer amenities and rooms, than large hotels catering to corporations seeking grand exposition spaces and guests looking for restaurant options.

Lodging plays a major role in Long Island’s tourism industry, which had estimated revenues of $5.5 billion in 2015, up about 3 percent from 2014, according to a recent report by Tourism Economics, a global analyst of travel data based in Philadelphia. Tourism generated $676 million in state and local taxes last year, the firm estimated.

Hotels here can take nearly a decade to build and open because of the Island’s limited available land and strict municipal permitting and zoning. But strong demand is encouraging developers to build despite the obstacles.

“We’re starting to see growth again in the visitor market and demand for hotel rooms,” said Robert Lipper, a tourism industry consultant and former Newsday advertising executive who has tracked the hotel industry for more than 20 years. Hotel construction typically follows a cycle and in peak years “we would see four or five hotels opening and we seem to be getting back to that.”

Average occupancy at Island hotels this year is 72.9 percent, compared with 66.4 percent for the nation, according to recent data from Smith Travel Research, or STR, a Tennessee-based analyst of hotel industry performance and trends. And this year’s 2.9 percent growth in room revenue here contrasts with a 3 percent decline in New York City.

Average room rates on Long Island in August — the peak of the summer season — hit $178.60 per night, a record here, STR said. And average occupancy for this August and last August climbed to more than 85 percent, the highest percentages since the same month in 2000, when occupancy hit 91.4 percent, according to the firm.

“Demand is outpacing supply,” said Alison Hoyt, director of consulting and analytics for STR. The Island has seen a 3.4 percent growth in demand this year, compared with a supply increase of only 1.2 percent. “Those are very strong metrics,” she said.

Next year, occupancy at Island hotels is projected to flatten or dip by 0.5 percent partly because of the increase in supply, although daily rates — a measurement of hotel revenue per room — are expected to continue to grow by 3.3 percent, putting the region ahead of the nation, STR projected.

“People are staying more and paying more for Long Island,” said Kristen Jarnagin, president and chief executive of the Long Island Convention and Visitors Bureau and Sports Commission, the local tourism marketing organization.

Patience is often required for hotel developers.

The Marriott Residence Inn is being built in Riverhead by Lee Browning Sr., chief executive of Riverhead Realty Management. Browning said he has been trying to build the hotel, which is next to his 114-room Hilton Garden Inn that opened in 2008, for more than eight years.

“It’s a business that takes a lot of planning, a lot of patience and a lot of money,” Browning said. Two of the biggest hurdles, he said, are navigating the zoning process and securing financing.

By his estimate, hotel developers must be able to put up at least 35 percent of the total project cost to qualify for bank financing. Other upfront costs include buying a franchise license from brands such as Hilton or Marriott — typically more than $70,000 — and hiring an architect approved by the brand at around $400,000.

“The entry fee is very high in this business,” he said. “You have to be into hospitality.”

The four-story Hilton Homewood Suites in Ronkonkoma is being developed by Arlington, Virginia-based real estate investment firm Excel Group, which owns 18 hotels nationwide.

Excel last year paid Browning $37 million for the Ronkonkoma property, including a 15-year-old, 154-room Courtyard by Marriott, two adjacent restaurants, and the site of the Homewood Suites for which Browning laid the foundation in 2014. Excel expects the hotel to open in 12 months. Excel disclosed last year in an application for tax benefits to the Brookhaven Town Industrial Development Agency that it expected the hotel to cost more than $21 million. Excel declined to give a cost estimate when called recently.

“We believe there’s a sufficient demand base today and we believe that demand is going to continue to grow,” said Shoham Amin, managing partner at Excel Group.

The Roslyn Hilton Garden Inn in Port Washington, on the border of Roslyn, takes the place of an abandoned sports facility in the Harbor View Corporate Park. Paul F. Amoruso, Larry Levine and his son, Adam Levine, the developers at Melville Hospitality, are building the project.

The hotel, which took four years to reach construction, was “fast tracked,” Amoruso said, by municipal leaders.

Construction on the four-story Courtyard by Marriott in Central Islip started this summer. Its Livingston, New Jersey-based developer, The Briad Group, expects it to open in the second half of 2017.

The developer told the Islip Town Industrial Development Agency in 2013 that the project would cost nearly $17 million. A spokesman for Briad didn’t respond when asked about the cost.

While the four hotels are being built by different developers, they are all national brands that cost less than their larger full-service counterparts, and are often referred to as select-service hotels.

Full service hotels, such as the 615-room Long Island Marriott in Uniondale and the 369-room Melville Marriott, the largest and second-largest hotels on Long Island, generally offer premium-priced amenities, including restaurants, large meeting spaces and room service.

Large corporations are mainstays of full-service hotels, said Ken Walles, president of the Long Island Hospitality and Leisure Association, a local hotelier organization. “The strength of full-service hotels is corporate business,” said Walles, who owns the 30-room Oceanside Beach Resort in Montauk and is former vice president and general manager of the 1,700-room Hotel Pennsylvania in Manhattan.

And since Long Island has lost major companies in recent years, demand for full-service hotels has weakened, he said.

Corporations that have left the Island in recent years include OSI Pharmaceuticals, Arrow Electronics and Forest Laboratories.

Extended-stay and select-service hotels typically offer lower room rates with more modest services and amenities.

“With business expenditures getting tighter, lower price-point hotels become more attractive,” consultant Lipper said.

While rates vary considerably over time, select-service hotels typically charge $20 to $40 less than their full-service counterparts, Lipper said.

In the Melville area recently, a full-service hotel posted room rates of $179 a night, compared with $159 for two nearby select service lodgings.

Challenges facing the hotel industry on Long Island include the building boom itself, Walles said.

“Every time you get new product on line, some of the existing properties will see a drop in business,” he said.

And hoteliers worry about the long-term impact of home-sharing services such as Airbnb, which allow homeowners to rent out their dwellings online similarly to small hotels.

Excel’s Amin said he expected growing industries on Long Island, such as health care and biomedical research, to continue to boost the hotel industry.

“As those industries continue to expand they will bring a large amount of demand to the hotels in the market,” Amin said.

Amoruso, of Melville Hospitality, said select-service hotels, such as the Hilton Garden Inn in Port Washington his company is building, give him access to markets that full-service hotels can’t enter.

“The reality is, until we get the proper amount of corporate demand, we will not have those big brand hotels being built on Long Island,” said Amoruso, who has developed and owns several hotels locally, including another Hilton Garden Inn and a Homewood Suites, both in Plainview.

“The market share will be taken away by these small, more nimble properties,” he said.

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