Mid-market offerings and sites with built-in demand are expected to be calling cards of the next set of local urban lodging projects.

Call it a contrarian bet or taking the long-term investment approach, but some developers are picking hotels as the best option for properties in Boston after the local travel industry was battered for two years. 

The evolution of hotels – favoring limited-service formats, smaller staffs and lower operating costs – accelerated during the pandemic and points to a potential profitable business model for properties targeting openings in 2024 and beyond. Adaptive reuse of existing buildings as hotels is likely to become more common, as developers seek to save on costs of acquisition and new construction. 

“The budget and select-service model are easier to pencil from a development standpoint,” said Jim Luchars, chief investment officer for hotel owner and operator Stonebridge Cos. “Those will get built before your high-end, full-service properties.” 

Boston and Cambridge hotels suffered some of the nation’s worst financial performances during the first two years of the COVID-19 pandemic, according to Pinnacle Advisory Group research. In 2021, revenues per available room amounted to just 44 percent of pre-pandemic levels, as leisure travel returned but business and group bookings sat on the sidelines. 

Value-oriented brands such as Hampton Inn and Courtyard by Marriott will lead the new development pipeline, Luchars predicted, while luxury downtown and convention-driven hotels will be the last. 

 Some Switch to More Stable Sectors 

The downturn brought a screeching halt to early-stage development plans for new hotels in Boston’s Seaport District, Back Bay, Leather District, South End and Quincy.  

Developers shifted their focus to more stable real estate demand drivers. The Harvard Club thought twice about a 200-room hotel on a portion of its Back Bay property, resubmitting plans for 134 apartments. WS Development and Peebles Corp. eliminated hotels from future developments in the Seaport District and Back Bay, jumping aboard the lab space bandwagon. Developer FoxRock Properties decided to test Quincy Center’s additional potential as a life science submarket, dropping a 20-story hotel and apartment tower on the

Undeterred by the lingering uncertainty over future business travel activity, NB Development is seeking approval for a 175-room hotel at its 1.8 million-square-foot Boston Landing development. Image courtesy of Group One Architects

Parkingway while increasing the project’s lab component by 100,000 square feet.

H.N. Gorin President Rosalind Gorin said a 300-room hotel proposal in Back Bay still makes sense despite the uncertainty over business travel and potential sale and redevelopment of the Hynes Convention Center. 

More than 28 months since the first confirmed COVID case in the U.S., hotel occupancy rates in Greater Boston remain below pre-pandemic levels. Pinnacle predicts Boston and Cambridge hotels will end 2022 with a 68 percent occupancy rate, down from 80 percent in 2019. 

But room rates have already fully recovered, with an average daily rate of $192. That metric contrasts with every other hotel down cycle in recent decades, Stonebridge’s Luchars said. 

“Those were true recessions, where in this case it was a pandemic. The demand that has recovered first has not been very rate-sensitive,” he said. 

 Mid-Market Strategy for Back Bay Tower 

The prospect for a full recovery has prompted proposals for more than 600 rooms at new hotels in Brighton, North End, Back Bay and Downtown Crossing, including a Back Bay tower that’s expected to target budget-conscious business travelers and vacationers. 

Boston-based H.N. Gorin Co. has owned the 2-story building at 39 Stanhope St. – which has been home to a succession of restaurants – for over four decades. In 2019, it formed a joint venture with New York-based hotel developer Masterworks on a 300-room hotel project, which was delayed until early this year by a Landmarks Commission review of preservation plans for the facade of the 19th-century building. 

President Rosalind Gorin said the business plan still makes sense despite the uncertainty over business travel’s recovery and potential sale and redevelopment of the Hynes Convention Center. 

“We’re building a mid-market hotel that serves tourists as well as business travelers, and the Back Bay is such an exciting part of Boston that we think a lot of people will want to be there,” Gorin said. 

The hotel flag has not been determined but could be Masterworks’ Club Quarters brand, which caters to business travelers with negotiated corporate group rates. 

“We’re several years away from opening here, so it’ll give us some time to think about our strategy,” Gorin said. 

Another proposal in Brighton appears to target a business travel rebound. NB Development is seeking approval for a 175-room boutique hotel at 180 Guest St., the last undeveloped parcel within its 1.8 million-square-foot Boston Landing development. Amendments to the previously-approved master plan submitted in November shrunk the hotel from 140,000 to 130,000 square feet, but contained no major changes in the programming.  

“If there are surrounding complementary uses, there are certainly situations where a hotel is the highest and best use,” said Mark VanStekelenburg, vice president at consultants CMHWarnick. 

 Luxury Projects Face High Barriers 

That was the conclusion reached by Brookline-based City Realty after buying a small office building near Downtown Crossing for $7.9 million in May 2021. The Brookline developer’s analysis pointed to a need for more downtown lodgings. 

“The more we looked at the site and surrounding area, it became clear it wasn’t as well-served as it could be,” City Realty Director of Acquisitions Clifford Kensington said. 

The 19th-century office building at 7-9 Hamilton Place would be expanded to 12 stories for the 80-room hotel project, including a rooftop restaurant. City Realty has also proposed a

Steve Adams

74-room hotel at 330 C St. in South Boston, an industrial property near the Boston Convention and Exhibition Center. 

“People who ride it out throughout this down period toward a fuller recovery will reap the benefits,” Kensington said.  

Adaptive reuse projects will continue to present alternatives to ground-up development in urban centers, given the concerns about cost escalation, VanStekelenburg said. 

Luxury hotel development costs now top $2 million per room in some of the highest-cost urban centers. 

“To the extent you can identify existing buildings at a low cost basis and do an adaptive reuse, that’s going to give some additional legs where costs are prohibitive for new construction,” he said.