When Vijay Dandapani looks at his forecast for 2015, he sees room rates staying flat as a prairie. Operating in the hottest hotel market in the country as the president and co-founder of New York City-based Apple Core Hotels, Dandapani’s outlook flies in the face of the optimism running through the rest the industry. Apple Core’s five properties all sit within a mile or so of each other in midtown Manhattan, so room demand is understandably high—averaging 85 percent last year, according to Dandapani—and new supply is coming on strong, though he says he’s used to that. “Anyone who knows anything about hotel operations has factored the inventory into their rate projections,” Dandapani says. “But there aren’t enough people taking unregulated inventory into account and that is a big reason why you’ll see our rates being flat this year.”
Like many NYC hoteliers, Dandapani is concerned about the ever-deeper bite unregulated room rentals from companies like Airbnb are taking out of his business. According to a 2014 report from industry consulting firm Lodging Advisors, Airbnb’s share of occupied rooms in the Big Apple increased from 3.1 percent in 2012 to 5.4 percent last year, with current estimates of online rental listings in Manhattan alone averaging 23,500 rooms. “This is a city were 33,000 people stayed in illegal private short-term rentals last New Year’s Eve,” Dandapani says. “When you have that many room nights going to people who would otherwise have come to hotels, it’s going to affect your rates.”
According to a report released in October by New York Attorney General Eric T. Schneiderman, nearly three-quarters of all Airbnb rentals in New York City are illegal, violating zoning or other laws. Based on 497,322 Airbnb transactions between January 2010 and June 2014, Schneiderman’s report found the company largely made money for a small number of commercial hosts running large, multimillion-dollar operations. The multi-room hotels housed in the condo and apartment buildings owned by these large operators supplied more than a third of the city’s units and generated more than a third of the revenue.
Along with speaking out against the issue as the current chair of the Hotel Association of New York City and aggressively pursuing even enforcement of local ordinances with city and state officials, Dandapani is determined to remain aggressive in his approach to running Apple Core. Given a level playing field, he knows he can compete with anyone in the lodging market by taking ownership of as much of his hotels’ operations as possible to best maximize efficiencies. He’s taken this same approach throughout his 22 years with Apple Core.
Dandapani and partner Steve Klein, CEO of parent company Apple Core Holdings, had just two hotels when they got started in 1993. “The principle shareholders were two long-time New York families,” says Dandapani. “They inherited a set of really good assets and I came in as the working partner.” Over the years, as Apple Core added a few new properties to its portfolio, the company transitioned all of them to a select-service model. “It was a strategic decision because operating costs are so high in the city,” Dandapani says. “You don’t make money from F&B, and we just don’t think it suits our strategic direction.”
Neither does branding, for that matter. Early on, all five hotels in the Apple Core Hotel portfolio were branded. Now, only two are: the Ramada New York/Eastside and the La Quinta Inn and Suites Manhattan. Dandapani’s intention is to drop the brand affiliations from both these properties as soon as their franchise contracts are up. Over the past 10 years, he’s done this with Apple Core’s other three hotels: the New York Manhattan Hotel, the Hotel @Times Square, and the Broadway @ Times Square. “I had already started setting up our own distribution channels, so it just wasn’t efficient for us to pay the extra fees,” Dandapani says. “And these hotels do well regardless of the brand.”
Beyond going the independent route, Dandapani’s goal has been to make the company an ultra-efficient master of its own destiny. “I set up almost everything from our proprietary website and booking engine to our call center and marketing arm.” He also says the website currently brings in around 20 percent of each hotel’s reservations. “It’s absolutely the best return on our investment. Beyond continued maintenance, I don’t pay anybody.”
Apple Core gets more value by not farming out room reservations to a third party. “There’s a cost to that, and more importantly, you don’t control the data fully,” Dandapani says. “Those things play a role in maximizing our distribution and marketing efforts.”
Like many independent operators, he points to social media and review sites as great equalizers when it comes to getting the word out. As long as his hotels deliver a better experience than their comp set, he feels he doesn’t need to lean on brand recognition. And, given the portfolio’s high occupancy rates, maintaining a superior experience involves an aggressive renovation strategy that refreshes all 775 guestrooms across all five hotels every four to five years. “Of course, new supply forces you to take a fresh look at where you’re going to spend the money,” he says. “But if your hotel doesn’t look new and it loses that freshness, you know you’re going to have customer issues.”
Rounding out Dandapani’s do-it-himself approach to hotel operations is a 24-hour call center operating out of Apple Core’s Midtown headquarters. “When talking, people generally tend to be a little more communicative,” he says. “Our call center gives us a sense of what the customer really wants because the website is not a human being and can’t tell you everything.” More than anything else, he adds, it’s the call center that provides Apple Core with return business. It also helps the hotels drive demand he otherwise wouldn’t know about because callers want to talk about what’s going on in the city, which can lead to packages and broader marketing programs. “People come to Manhattan because they want to see the vibrancy of the city, and they want to go where the locals eat.” Dandapani also says that being at the heart of everything is vital to his approach to hotel operations.
And when it comes to growing the Apple Core portfolio, Dandapani says he’s open to the right opportunity, but he doesn’t see too many of them on the horizon. “With interest rates being so low and the flood of money that’s available, it’s really hard to get into the kind of space we’re really good at.”
Dandapani has been in New York City long enough to recognize its unique ability to absorb massive supply growth. “I’d rather we didn’t have it at this level, but I think there is still room to grow. And if there are too many hotels in the city, financing should be able to recognize that and not give someone money for their next project.” Dandapani points to the early ’90s as an example. “At that time, they said stay alive till ’95 and you’ll be fine. Of course, the same thing happened after the .com bust.”
While the hotel development cycle has been able to correct itself as demand built up in the past, the new online room rental landscape in New York City complicates things. “You can never completely level the playing field because of taxes. In New York City, the realistic tax on a 62,000-square-foot building is $1.2 to $1.3 million a year. If the same building were a condo, the tax would be about $400,000. ”
He adds that it’s a going to be difficult for lenders to recognize the growing supply of unregulated room inventory and stop lending to hotel developers. “That’s because lenders have no role to play in this illegal hotel supply,” Dandapani says. “There were 33,000 room nights booked on New Year’s Eve and no bank, no private equity, no hedge fund had anything to do with that.”
