The Pod Hotels Set to Become a Force in the Capsule Hotel Market
By Rani Gharbie Head of Acquisitions & Development, The Pod Hotels | June 30, 2019
The Pod Hotels, the highly profitable micro-hotel concept from BD Hotels, plans to expand from five to fifty properties as part of an aggressive expansion plan over the next decade. The brand, which currently has a total of 1,660 Pod rooms and 45 Pod Pads apartments in its portfolio of five properties, three of which opened over the past two years, recently announced plans to develop two more hotels, one in Philadelphia opening in Fall 2019 and one in Los Angeles slated for 2020.
As the brand's new Head of Acquisitions & Development, I've been tasked with overseeing this robust expansion plan, identifying potential investment opportunities and finding strategic development partners and investors to fund future Pod Hotels in numerous markets across North America and, ultimately, internationally.
About The Pod Hotels
Hoteliers Richard Born and Ira Drukier, co-owners of BD Hotels, were the first to introduce this successful micro-hotel concept to New York City in 2007. The overall concept is to accommodate the needs of today's savvy, "young-minded" travelers by offering well appointed, efficient accommodations ranging from 110 to 150 square feet, unique communal social spaces, and interesting food and beverage offerings.
In a world where people look to define themselves by their environments, they want unique, authentic experiences, so each location is meant to encourage guests to explore the respective city and surrounding neighborhood. The Pod Hotels caters to this traveler by offering a high-quality, experiential stay close to the action of the city, and at an affordable rate.
As the pioneer of the micro-hotel concept, we launched in 2007 with Pod 51 in Midtown East, Manhattan and instantly became a success. The innovative idea of offering clean, smart, affordable accommodations and encouraging guests to immerse themselves in the surrounding neighborhood appealed to travelers looking for a budget-friendly option in New York City.
In June 2012, BD Hotels launched the second outpost, Pod 39, in New York City's Murray Hill neighborhood. Expanding upon the original formula, the property introduced guests to a new rooftop lounge, vibrant "Play Room," wall-mounted iPads and projection screens. As the properties continued to gain popularity, BD Hotels developed the third Pod Hotel, Pod DC, the first property to be established outside of New York City.
A Bunk Pod at Pod 39
Since then, the brand has gone on to open Pod Brooklyn, the first modular built hotel in New York City and the portfolio, and most recently in 2018, Pod Times Square, the brand's flagship property. Pod Times Square is the largest Pod to date with 28 floors, 665 rooms and 45 Pod Pads, the first ever micro-apartments. These new living spaces vary from 350 to 800 square feet and are designed for those interested in extended stay options or even long-term leases. Pod Pad tenants have exclusive access to two floors of amenities, including a fitness center, indoor/outdoor guest lounge and top floor boasting panoramic views of New York City's West Side and Hudson River. The implementation of this residential offering has revolutionized the way both business and leisure guests travel as it offers flexibility, convenience, and affordability.
Similar to the other properties in the portfolio, Pod Times Square features a unique food and beverage offering, The Polynesian, a tiki-themed bar with a large outdoor terrace from Major Food Group, a New York based restaurant and hospitality company behind some of the most iconic restaurants in the city, such as Carbone and Dirty French. As the trend of micro-hotels grows with brands such as Moxy, CitizenM, and YOTEL offering similar products to The Pod Hotels original formula, we are on schedule to open two more locations, one in Philadelphia and one in LA. We are also in active discussions with over ten potential partners to bring The Pod Hotels to various key gateway cities in North America.
A Pod Pad at Pod Times Square
Why The Pod Hotels, And Why Now?
The Pod Hotels has great growth potential from both a consumer and business perspective. Overall, the brand has a strong, loyal following and there is a high demand for this type of product in the market. The Pod Hotels occupancy rates are consistently running above industry average. From the start, the brand has catered to the increasing demand for affordable, lifestyle hotels and has become a favorite among progressive minded travelers who prefer to spend less on their accommodations and more on organic, local experiences. In today's ever-changing world, guests maintain high expectations when it comes to smart design, clean accommodations and intuitive technology, so they seek out innovative, affordable brands.
Each of our locations offers guests clean and comfortable guest rooms in a variety of configurations that are designed to optimize space and provide travelers with everything they need (i.e. storage space for suitcases, a bathroom, hanging space for clothes) and nothing they don't. The product design is efficient, so while there is not a full amenity package, the brand places emphasis on travelers experiencing the surrounding neighborhoods. Unlike most hotels in this price point, The Pod Hotels offers complimentary walking tours and a concierge service that can coordinate local activities.
From a real estate investment perspective, The Pod Hotels design is value engineered and shows exceptional risk adjusted returns. While the rooms are small, they are designed to optimize the use of space. With this efficiency as a core attribute, our construction cost is 60-80% of the cost of a competitive brand, but we drive 100% of the revenue, which results in superior returns when compared to legacy hotel brands of similar positioning. The product is set to succeed in markets with a high density, but with a scarcity of land, as the rooms are compact allowing a higher number of rooms per project within the same gross buildable area.
In addition, The Pod Hotels runs an exceptionally lean operation at property level, by centralizing at corporate level most of the brand's key functions such as reservations, revenue management, sales & marketing, social media and accounting. Also, we strategically rely on BD Hotels strong relationships with renowned restaurateurs and bar operators to join forces with us and run unique concepts in our properties. This allows The Pod Hotels brand to focus on operating the lodging component and, consequently, on driving exceptional profit margins for our real estate partners and ourselves.
From a partnership perspective, our mothership, BD Hotels, has a strong investment track record, making us an ideal partner for third party developers looking to build a Pod Hotel. BD Hotels has developed an expansive capital markets network and a deep understanding of hotel investment through owning and operating some of the most exquisite lifestyle hotels in New York City, including The Mercer, The Bowery Hotel, The Ludlow and The Greenwich Hotel. We will be actively leveraging our capital markets relationships to help our partnerships fund our future Pod deals.
In addition, for several decades, BD Hotels has been running a successful operating entity with more than twenty-five hotels in its portfolio and over 5,000 rooms, which provides us with a unique competitive advantage as a brand management company as we scale The Pod Hotels.
Thoughts About Modular Construction For Hotel Assets
We were the first to introduce a modular hotel to New York City with Pod Brooklyn in 2017, providing us with the experience and key learnings to replicate this in other cities. For this particular opportunity in Brooklyn, the zoning laws prohibit tall buildings, so we built a series of four buildings connected by glass corridors that are each only four-stories tall. Each room is approximately 110 to 120 square feet and was built in Poland, shipped to the US, and assembled on site. Courtyards and gardens run between the buildings offering guests peaceful places to socialize and relax.
Modular construction is beneficial as it is typically about 15% - 20% cheaper than a traditional build. Additionally, with modular construction you have fairly controlled and predictable construction costs and timeline, which eliminates many of the risks associated with traditional construction. It also allows for construction of a quality product in a less familiar market through development control since each room is built using the same model and merely stacked together on-site. After going through the building and development process of this modular hotel, we are now better equipped to roll out this model to other key markets.