European Hotel Brand CitizenM Still Moving Forward With D.C. Expansion Despite Pandemic

An era of pandemic and economic recession is not the ideal time to open a new hotel, and it can be a difficult time to break ground on a new one, but CitizenM is planning to do both of those in the next three months in the nation's capital.

The Dutch hotel brand is planning to open its first D.C. hotel Aug. 27. The 252-room hotel is part of a mixed-use development from CityPartners at 555 E St. SW that also features a 194-unit apartment building and 10K SF of retail.

CitizenM is also moving forward with its second D.C. hotel project at 1222 First St. NE in NoMa. It has begun demolition on the site and plans to begin building the new hotel within the next 30 to 90 days, CitizenM Managing Director of North American Development & Investments Ernest Lee told Bisnow in an interview last week.

Additionally, Lee said CitizenM has been actively searching the market for a site to build a third hotel, and it ultimately aims to have between three and five hotels in the D.C. area. He said it is looking primarily in Northwest D.C. and the Northern Virginia area around Amazon HQ2. 

"D.C. has always been a market that has been considered an interesting hedge to people who have a national or global portfolio in that it historically has been a government-anchored, steady market that has upside through a complement of private sector growth," Lee said. "We have always viewed D.C. as an interesting lower-downside, lower-upside market that is a nice counterbalance to the rest of our cities."

While it views D.C. as an attractive market over the long term, CitizenM is expecting its opening next month will be challenging as the hotel market continues to struggle with the loss of tourism and business travel caused by the pandemic.

The occupancy rate among the D.C. hotels that have continued to operate stood at 19.2% for the week ending June 20, according to STR, a 79% decrease from the same period last year. Hotel owners have begun to see an increase in occupancy from the depths of the crisis as families are increasingly taking vacations by car to regional destinations, but it remains an uphill battle for the District's hotels.

"Just like any hotel operator or owner in this interim period, which is the next six to 12 months or however many months it is before a vaccine is distributed en masse, it's a matter of keeping the lights on and breaking even and trying to keep the ship afloat," Lee said. "But we do see occupancy rates starting to trend up."

CityPartners founder Geoffrey Griffis, whose firm developed the 555 E St. SW project and owns multiple existing hotels in D.C., said he is seeing occupancy rise slightly at its other D.C. hotels, including the nearby Hyatt Place at 400 E St. SW. While demand is still well below normal levels, Griffis said there can be benefits to a slow start after opening a hotel.

"When you open a hotel, you don't want 100% occupancy," Griffis said. "You want to learn the ropes, you need to train the people, and maybe a slow start will be brilliant for [CitizenM] to ramp up."

Griffis and Lee both said they see CitizenM's brand segment and business model as relatively well-suited for this period. The brand had already implemented elements like touchless access and mobile check-in before the coronavirus.

"What's interesting about CitizenM is the design was based on that before the pandemic. They are contactless, that's another piece that impressed me in seeing what they do," Griffis said. "You could not see a person if you didn't want to, and check in on your phone. Or you could be in the beautiful social areas that are large and airy and keep your distance."

The combination of the CitizenM hotel and the new apartment building on the site will be a mutually beneficial dynamic, Griffis said, and he expects the project will have a positive impact on the neighborhood.

"They are a dynamic group. You can see it in the lobby, how perfectly built and designed it is, but it's also an experience," Griffis said of CitizenM. "It fits in this area that urban renewal scarred, and it's starting to bring back that real life and real activity, and that carries through our entire building."

The hotel is better positioned than some other D.C. properties that have large ballrooms and rely on convention business, one of the last demand segments hoteliers expect to return, Griffis said. CitizenM considers individual business travelers as its main demand driver, Lee said, a segment he expects to come back before the larger group travelers attending conferences. 

The brand positions itself in between the price point of a select-service hotel and a higher-end boutique hotel, Lee said, a segment he sees as underserved in D.C.

"The room rates, obviously pre-pandemic, have always made upscale boutique hotels out of reach for the larger traveling population, so that's something we aim to solve and address, and we think that's something probably not being solved by the incumbent, existing hotels," Lee said. 

Lee's optimism about CitizenM's success in the D.C. hotel market extends not only to the property it is opening next month but to its next hotel that is still in the early stages of development.

The hotel it is preparing to break ground on at 1222 First St. NE, the former site of the Ibiza nightclub one block from the NoMa Metro station, is slated to have 290 rooms. The brand liked the NoMa location because of the area's continued growth, the hot dining scene in the nearby Union Market area and the proximity to Union Station, demand drivers that he said will last beyond the pandemic.

"We think this is an interesting location long-term, we wanted to be there not in a pioneering way, but in more of the next follow-on wave," Lee said. "And with that came a calculated bet that we think some markets around major transportation hubs typically fare well long-term."

CitizenM and its development partner for the NoMa hotel, Altus Realty, haven't secured a construction loan for the project. Lee said the lending environment for new hotels is challenging right now, but he remains confident in the brand's banking relationships. Even if it can't land a loan, Lee said the team is prepared to begin construction on the project with its own equity investment. 

"The goal is to take advantage of a period where we believe that there's obviously a construction slowdown, and this period will cover us for the next 18 to 24 months, so it's actually quite a good time and an advantageous time for a developer to build," Lee said. "And hopefully by that time when you're open, you have tailwinds and are going up in a new recovery cycle."

In addition to a slowdown of new hotel development, Lee also expects some hotels will be forced to close, potentially reducing the supply CitizenM has to compete with in the market. Marriott International last month provided notice to employees of the 1,100-room Marriott Wardman Park Hotel that it is considering closing permanently, but a final decision has not been made.

"What this pandemic will do will be not quite a reckoning, but a little bit of a sobering moment for anyone that had a fringe asset quality, so they were getting by with what they had without elevating the guest experience," Lee said. "Hopefully ... there will be a little bit of a rebalancing that will make it not easier, but a more fair marketplace for hotel owners coming out of this recovery."

Contact Jon Banister at jon.banister@bisnow.com.