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When Mitchell Hochberg, the president of New York-based real estate company Lightstone, was trying to find the next best “affordable” hotel concept to bring to the U.S., he found himself at a bit of a dead end.
He and his team were searching everywhere for a hotel that would be both economically viable for their future hotel guests, and for them as the money behind the development.
Lightstone had considered going with other millennial-minded micro-hotel brands such as AccorHotels’ Mama Shelter, CitizenM Hotels, and Yotel, but none of those brands seemed to be the right fit. Hochberg thought that the company’s best bet was to do something entirely independent.
But when Hochberg found himself at the Malpensa Airport in Milan in 2013 and saw an “under construction” sign for a Marriott brand he’d never heard of before, he knew he’d found his answer.
At the time, there were no Moxy hotels in the U.S. This new brand from Marriott was marketing itself as offering the “bare maximum” for cost-conscious millennials, and for that very first Moxy in Milan, Marriott had even collaborated with Ikea to develop prefabricated modular room components to cut back on costs.
This “fun” micro-hotel concept, Hochberg thought, might just work in the United States. And the added benefit of working with a company like Marriott wasn’t lost on him, considering Lightstone already owned 20 other Marriott-branded properties in the U.S.
Last year Hochberg opened Lightstone’s first of four planned Moxy hotels in New York City.
“If people are happy being in a 175-square-foot room in Europe, why couldn’t you design a 175-square-foot room in the United States that people would be happy with?” Hochberg asked. “We felt that if we could make the room size a third to 50 percent smaller than it usually is, we could charge less and be a very attractive, affordable alternative.”
Before bringing the Moxy brand stateside, Lightstone had some requests: Namely, tweaking Moxy’s “bare maximum” select-service model in Europe to make sure it would appeal to U.S. audiences by investing more in the design, and adding food-and-beverage venues where there weren’t any before.
“We felt that the brand needed to be somewhat fine-tuned for the American consumer, from what the brand was evolving in Europe,” Hochberg said. “The brand was established on a complete select-service chassis in Europe, whereas we felt that food and beverage was an important component to have if the brand were in a major gateway city like New York, Los Angeles, or Miami.”
Marriott agreed with Hochberg, and last year, Lightstone opened its first Moxy hotel in Times Square, with three more on the way. Going forward, the company also plans to open three more Moxy hotels in Los Angeles, and another in Miami–for a total of eight Lightstone-owned Moxy hotels.
Lightstone’s multibillion-dollar commitment to growing the Moxy brand in North America is the byproduct of a unique, if “unusual,” relationship between hotel developer and hotel brand company, highlighting the many challenges hotel owners face today.
Here’s an inside look at how Lightstone worked with Marriott to translate the Moxy brand concept for the American market, and specifically in New York City.
An Unusual Hotel Brand-Owner Relationship
Hochberg and his team worked very closely with Marriott on making sure the Moxy brand would work in New York. Not only would the New York properties be significantly larger in size than they were being built in Europe — 300 to 600 rooms compared to 150 rooms — but they would also need “a higher level of design.”
Marriott agreed with Lightstone, and gave Hochberg the green light to add dining venues by Tao Group, as well as hire Yabu Pushelberg to do the design for the public spaces and guest rooms for the first project, the unofficial North American flagship for the brand.
Yabu Pushelberg is the same design duo behind luxury hotel properties from brands such as the Four Seasons, Park Hyatt, and Marriott’s own Edition and St. Regis brands.
Lightstone’s insistence on elevating Moxy’s design aesthetic will also have an impact on future Moxy hotel projects. The clever designs and flexible, foldable furniture Yabu Pushelberg created for the Times Square location, which opened last fall, are now available to other hotel owners who decide to open Moxy-branded hotels.
“It’s critical, both to the owners of the hotels and to Marriott as the owner of the brand, that as the brand gets rolled out, that they maintain the overall integrity of the brand,” Hochberg said.
New York City isn’t a place that’s known for relatively affordable hotel accommodations, either to stay in or to build, so developing Moxy’s cost-consciousness here would require some thought on Lightstone’s part.
In 2016, the average daily rate for a hotel room in the city was $258.04, and the average occupancy rate for the city was 85.9 percent, according to data from STR.
Today, Lightstone’s Moxy Times Square hotel has nightly rates that range anywhere from $150 to $279. A select number of 120-square-foot rooms, called Crash Pads, go for $99 a night all year-round. Those 19 rooms account for 3 percent of the hotel’s total 612-room inventory. Compared to other Manhattan-based hotels, it’s relatively priced to be affordable.
While New York City hoteliers can demand relatively high average nightly rates and expect to have nearly fully booked hotels, they’ve also had to deal with the impact of the popularity of homesharing and an influx of new hotel supply that makes it a challenge to compete.
Even with more hotels opening every day, and signs of a bit of a “Trump Slump” in international visitors, Hochberg is confident that New York City will continue to be a strong hospitality market.
“Long term, we have no concerns about the New York City markets,” Hochberg said. “That’s why we’re investing a billion dollars into [developing] Moxy hotels in New York City.”
He also said that brands like Moxy are “a very compelling alternative to someone who’s considering Airbnb.”
For example, he said, even if it costs $279 a night to stay in the Moxy Times Square, and $179 a night for an Airbnb listing in Queens, the guest who stays in the Moxy eventually wins out in terms of “the overall experience.”
“If you’re in Queens, you’ve got to take two subway rides, walk down a dark street, walk into a building that you’ve never seen before, and hope that everything is OK,” he said. “Whereas if you’re staying at the Moxy Times Square, you’re in the middle of everything. You know what you’re going to get. You get your Marriott Rewards points. You’re going to have security, nightly maid service, and five restaurants and bars to choose from just within the hotel.”
Consumer Response to Moxy and the Micro-Hotel Movement
But are five hotels of the same exact brand — and one as distinctive as Moxy, with its micro-hotel concept — too many for any one city or borough?
Not surprisingly, Hochberg doesn’t think so.
“I’m not too worried about too many Moxys,” Hochberg said. “We put a tremendous amount of thought into how deep we felt the brand could be in New York. And in New York, in particular, guests typically pick hotels by neighborhood. And a guest that’s going to be in the East Village is not a guest who’s going to want to stay in Times Square. Whether it’s a leisure guest or a business guest, it rarely happens. So, we think they’re all distinct sub-markets. And we don’t think they at all bastardize each other.”
In New York, the five different neighborhoods that will have a Moxy Hotel are Times Square, Chelsea (opening October 2018), the East Village, the Lower East Side, and the Financial District (opening in July 2018, but is not being developed by Lightstone).
Thanks to space constraints and the high cost of development in New York, the city is increasingly becoming a popular destination for the micro-hotel concept. BD Hotels also plans to have a total of four Pod-branded hotels in New York over the next few years. And just last year, Ian Schrager opened his new Public Hotel in the Lower East Side with plans to open more throughout the city.
“Consumers are beginning to acclimate themselves to the fact that if they want an affordable product, they’re going to have to sacrifice something, and if you can give them an overall experience which they enjoy, then the size of the room — particularly in an urban environment — is something that they’re willing to sacrifice,” Hochberg said.
He said that customer response to the first of Lightstone’s many Moxy Hotels has been “overwhelmingly positive” and that the performance of the hotel in just five months “has exceeded our underwriting.”
“Today’s guest needs are rapidly evolving, and I think the industry has been playing catch up,” Hochberg said. “I think it’s people like us and similar companies that are listening to the guest, not just in terms of affordability but also in luxury, are really creating experiences which resonate more with guests, and responding to how the guest needs are really changing.”
The Evolving Relationship Between Hotel Owner and Hotel Brand
As hotel companies like Marriott and its peers pursue asset-light business models in which they act primarily as brand companies, it’s imperative for them to ensure that the hotel owners and franchisees they work with are kept happy.
“Marriott has always listened to its owners,” Hochberg noted. For example, Marriott also recently used owner feedback to reposition two of its other select-service brands that it inherited from the Starwood deal, Aloft and Element.
For the most part, the hotel brands’ efforts to scale up and lower costs for owners — especially in the form of commissions paid to online travel agencies and third-party meeting planners — has been appreciated by developers and owners like Hochberg.
But that scale, he noted, can also be a “double-edged sword” when hotel companies like Marriott have up to 30 different brands. Owners like Lightstone aren’t just competing with the other select-service hotel brands from Hilton and others; they also have to compete with brands from within the Marriott family too.
In New York City, Marriott has at least 39 other select-service hotels that directly compete with Lightstone’s Moxy properties: one AC Hotel, one other soon-to-open Moxy hotel, 12 Fairfield Inn & Suites, eight Courtyard by Marriotts; seven Four Points by Sheratons; five Alofts; and one Element hotel.
For owners like Hochberg, the proliferation of brands, coupled with rising costs of labor, are their “biggest challenges today.”
As an owner, when deciding whether to open an independent hotel or go with a brand, he weighs distribution channels, loyalty programs, and brand identity very heavily. “What you’re looking for is a brand that it easy to understand, to communicate, and delivers a distinct experience, whether it be in the product or the service, to the customer, that makes it unique,” Hochberg said.
He added that, despite the challenges facing hotel owners today, “there are great opportunities for an owner to make money” in the hotel business.
“We’re sensitive to overbuilding. We’re sensitive to the proliferation of new brands. And those are things that we need to be careful about in making decisions,” he said. “But I still think there are great opportunities for developers and owners.”