Boston is a major center of higher education in the U.S., including institutes such as Harvard University, M.I.T., Boston University, and Northeastern University, among others. Healthcare, education, and research are paramount components of the regional economy; the medical schools of Harvard University, Boston University, and Tufts University are world renowned, as is Massachusetts General Hospital and Brigham and Women's Hospital. Boston is also considered one of the top places in which to do business in the United States. Major industries include education and health services, finance, government, information, leisure and hospitality, manufacturing, and professional and business services. Boston’s hotel market, like hotel markets in most of the nation’s first-tier cities, remained ascendant through 2015, with RevPAR growth nearing 8.0%. At a level slightly over 76%, the market’s 2015 occupancy surpassed the historical peak of 75.76% (recorded in 2000, the last year of the tech bubble), even though demand levels only moderately increased in recent years. With its extremely challenging environment for new hotel construction, supply tends to increase in only minor increments; thus, the market’s occupancy rate can seem to be self-policed.
That being said, Boston is currently in the midst of a historic development boom. Although the expansion is primarily taking the form of new residential towers, most projects have multiple uses, with office and hotel components featuring prominently in many plans. There is even a major retail project underway in the Seaport District, which is currently among the fastest-growing commercial districts in the urban world. The Seaport District is also the focus of most of the city’s new hotel development. Two hotels opened in Boston proper in 2015: the 136-key Envoy Hotel Marriott Autograph Collection and the 178-room Hilton Garden Inn Boston Logan Airport. As of the first quarter of 2016, three additional hotels had opened in the city: the 330-room Aloft Hotel Boston Seaport, the 180-room Element Boston Seaport, and the 243-room Godfrey Hotel. Furthermore, as of the second quarter of 2016, three hotels are currently under construction in Boston, including the 307-room Yotel, the 220-room Courtyard by Marriott Bulfinch Triangle, and the city's second Four Seasons by Sheraton (211 rooms).
Over 20 hotel transactions occurred in the metropolitan Boston area between January 2014 and May 2016. Perhaps the most noteworthy of transactions is the 148-room Mandarin Oriental Hotel, which sold for $140 million, or approximately $1,000,000 per key, in April 2016; this sale represents Boston’s highest per-room transaction. Other notable sales include the December 2015 acquisition of the 242-room Godfrey Hotel (for $173,900,000 or $718,595 per room) and the May 2016 transaction of the 273-room Taj Boston (estimated at $125,000,000 or $457,875 per room).
Looking forward, there are substantial variables facing investors in Boston hotel real estate in the form of efforts to expand the BCEC, as well as an entrée into the gaming realm with a Las Vegas-style casino hotel in nearby Everett. These variables, all providing bases for upside-heavy forecasts, help form the underwriting foundation for new hotel construction. In fact, thousands of new rooms have recently been approved by the Boston Redevelopment Authority, and thousands more are proposed and moving toward permitting. Although recent history suggests that the number of new rooms that come to fruition will represent only modest increases, new supply risk is a relevant concern in the next five years. The extent to which proposed projects become real will largely depend upon continued above-inflation gains in average rate and the appetites of the debt market.