It was precisely what he’d been taught not to do: Jason Brown was buying a hotel in the Hamptons.

Brown, the co-founder and CEO of Blue Flag Capital, was on a buying spree out East, a market he’d been instructed to avoid. The issue lay in the area’s seasonality — visitors came from Memorial Day Weekend till Labor Day Weekend, and it was crickets the rest of the year. Not a good bet, in theory. 

What once was a contrarian thesis is now so mainstream that institutional money is stalking Brown.

“All these institutional investors and the REITs are knocking at our door,” he said, though he has no plans to sell.

Brown started acquiring in the Hamptons in 2023, spending $6.4 million for the 34-key Greenporter in the North Fork’s Greenport. A few months later, Blue Flag dropped $13.5 million on another 34-room hotel, Sunset Beach in Montauk. Next was the 27-key Haven Montauk for $15 million, then the 67-room Baron’s Cove resort in Sag Harbor for $66.5 million last summer. 

He isn’t the first. Jayma Cardoso opened the 20-key, perpetually trendy Surf Lodge in 2008. The Lerner family opened the 11-key Reform Club in 2009, and 16 years later nightly rates for Memorial Day Weekend start at $1,400. Bill Campbell and Simon Critchell in 2010 restored the 22-key Topping Rose House in Bridgehampton, which has stayed a hotspot for both diners and overnight guests.

This latest wave of investors went bigger — more than a dozen hotel properties with over 500 keys have traded since 2020. The rooms have Frette linens and the interior design is “considered.” Billed as “private,” “elevated” “retreats,” they sell the dream of laidback escape driving distance from the famously high-key city where their guests reside, for only $1,000 a night — the same kind of luxury thinking that prompted the Olson twins to open the Row in Amagansett and dinner-to-party destination Bagatelle, of St. Tropez fame, to launch in Montauk. The sweeping, extreme luxury across retail and hospitality properties, as well as regulation of short-term home rentals, means that hotels in particular have become a good investment. But it remains to be seen what these new offerings mean for the summer home rental market, or how this new, transient population will change a place once reserved only for those taking residence for the season.

Summer or nothing

It used to be that people summered in the Hamptons, renting out homes for the entirety of the high season from Memorial Day Weekend till Labor Day Weekend. 

That pattern has changed twice in half a decade. First, as work went remote in 2020, people scattered, creating a boon for real estate markets across the country. Hoteliers, especially in luxury destinations, were early beneficiaries.

“We opened in June 2020 with zero reservations on the books,” Sylvia Wong, owner of the Roundtree, a hotel in Amagansett, said. Within three weeks, her 14-key property was fully booked for the rest of the summer.

Then things shifted again. According to market insiders, one of the pandemic’s knock-on effects is shorter stays. People want to visit the Hamptons — but they also want to go hiking in Aspen, sun themselves on a yacht in Capri and take advantage of the cheap exchange rate in Tokyo. The result is a softening summer rental market, and more demand than ever for the few hotel rooms in each Hamptons enclave. 

“It’s all switched,” Brown said.

The stays may be shrinking, but the budgets are not. Just from 2019 to 2022, the average nightly rate for hotels in the Hamptons surged 51 percent. Marc Rowan, the CEO of hedge fund giant Apollo Global Management, is charging $2,900 for peak nights this summer at Duryea’s Sunset Cottages, a 4-key boutique hotel affiliated with the “lobster shack” of the same name. 

“It’s cheaper to buy a ticket and go to Europe than vacation in Montauk,” Cardoso told the New York Post last summer.

Tiny, expensive markets

It may be cheaper, but it is not easier to hop the pond than to hop in a car. And while a European holiday can be a dream, the Hamptons are one of a few enclaves with a long history as an all-American weekend getaway. This forms the basis of Brown’s investment thesis.

“The majority of discretionary dollars in the United States is held by a really small group of people,” Brown said, and that group has a set roster of favorite vacation spots, in markets with a high barrier to entry. As an investor, once you get your foot in the door in these places, the payoff can be tremendous and there’s not as much competition.

Brown cut his teeth with the Kimpton Hotel & Restaurant Group before joining Yotel as its chief development officer in 2012. This start was a far cry from the boutique luxury space he now plays in. He left in 2018 to start Blue Flag Capital with Brad Guidi, with the intention of entering forbidden territory. 

They snapped up nine properties on Nantucket, launching Blue Flag’s Faraway hotel brand. After extensive, luxe renovations, Blue Flag opened the Faraway Nantucket and Faraway Martha’s Vineyard, where nightly rates for Memorial Day Weekend were over $1,000. 

“It can’t keep going up, but it does.” Blue Flag Capital’s Jason Brown on peak night hotel rates in the Hamptons

“When I graduated Cornell [Nolan School of Hotel Administration] in 2005, hotels were still viewed by investors and the banks and the lenders as a daily lease,” meaning the value was calculated per night and therefore, risky, Brown said. “They wanted you to go after relatively stable, tried-and-true urban core markets.”

Brown found this shortsighted. Locally owned boutique hotels had been operating in the Hamptons for ages, but they couldn’t provide the kind of luxury service the well-heeled city dwellers expected from the hospitality world. Still, the seasonality issue loomed — how can you go into a market that hibernates nine months out of the year? 

Then came the pandemic realignment. More people than ever before were clamoring for an escape, sending occupancy rates skyrocketing and allowing hoteliers to respond with price hikes in kind. Peak prices continue to beat Blue Flag’s expectations: “It can’t keep going up, but it does,” he said of nightly rates.

Visitors now begin arriving in April and May and stay past Labor Day, well into the shoulder season. While occupancy and rates are lower in the off months, bookings continue at a rate unthinkable pre-2020. 

“December, we were doing real business,” John Meadow, founder and president of LDV Hospitality, the firm that manages the Maidstone Inn in East Hampton, said.

Meadow has worked in Hamptons hospitality for more than a decade. His firm is perhaps best known for Scarpetta, the high-end Italian restaurant with locations in New York City, Las Vegas and Doha. LDV was the food and beverage partner at Gurney’s Montauk Resort & Seawater Spa for 10 years. The 149-key Gurney’s is a behemoth by Hamptons standards. The oceanfront resort could not be built under today’s building code, and as such is a perfect illustration of why investors are now flocking to buy the East End’s existing hotels. With no opportunity to build, they’re shielded from competition.

As Meadow put it, “Aman is never going to open in the Hamptons. They’re never going to be able to create a 200-key property.”

Quirks and all

Hotel investors eyeing the Hamptons must embrace the tricky business of wrangling with its local governments and strict regulations. That, in addition to the seasonality of the market, kept investors at bay for many years, sources said. 

East Hampton’s Maidstone Inn is a centuries-old property subject to some of the enclave’s strictest rules. Though Tilray Brands CEO Irwin Simon and restaurateur Mayank Dwivedi bought it for just under $17 million in 2023, “the Maidstone is owned by the Town of East Hampton forever, metaphorically,” Meadow said. “This is part of the history of this region.”

Even the color of the outdoor furniture is regulated, he noted.

In other words, investing in properties like these requires accepting the Hamptons for what they are, Meadow said.

“I think people think that it’s a tough place when they want to make it something that it’s not,” he said. 

The Hamptons embraces investors who seem to understand this. Earlier this year, news broke that Andrew and Sarah Wetenhall acquired the Hedges Inn in East Hampton for $8 million. The couple is best known for revitalizing the perfectly pink Colony Hotel in Palm Beach. 

This outcome was much preferred to a previous plan for the Hedges. Last summer, Zero Bond founder Scott Sartiano rented the inn out with the aims of creating a nightlife space, something that inspired much handwringing and noise complaints, the New York Post reported. 

The Wetenhalls, who own a home in Sag Harbor, are updating the Hedges with decidedly Hamptons touches: personalized beach setup service, complimentary electric Volvo EXC-90s for getting around town and a weekly speaker series starting in July, according to a press release. 

It might not be long until larger investment funds get interested. Like Brown, Wong already fields offers on a near weekly basis, she said. 

“I don’t respond,” she said, laughing. “I’m not interested.”