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By Lisa Rauschart
Reprinted from The Washington Times April 7, 2006
How much will you pay to avoid the hassle that comes with owning a home? If you are like a growing set of affluent area residents, the answer will be quite a bit, especially if the price also involves the chance to live in an internationally known, five-star establishment.
Like the hustle and bustle of Georgetown but never wanted to deal with the parking? Need a little help in the housekeeping department? Don’t care to trek to the health club? Then the Ritz-Carlton’s newest hotel residence in Georgetown may be for you.
Owners are privy to all of the hotel’s well-known amenities and legendary royal treatment, including maid and concierge services. The staff can even serve you dinner prepared by the hotel’s executive chef.
“The Ritz-Carlton has always been known for its service,” says Walter Hall, vice president of residence at the Ritz-Carlton. “So it seems a natural brand extension to provide living arrangements, as well.”
Currently, the Ritz-Carlton has 15 additional hotel residence projects in the works, and the company recently opened hotel residences in Dubai and Berlin. Each is tailored to the tastes and lifestyle of the city its serves, Mr. Hall says.
“Every project is unique,” he says. “Our architecture and design reflect a lot of the trends in the local market. We’re competing to be best in class.”
Meanwhile, Donald Trump is building several hotel residence projects in a number of urban hot spots, including Chicago, Fort Lauderdale, Miami and Dubai. Couple brand name with lifestyle, and you’ve got a market that can command some astoundingly high prices.
At the Ritz-Carlton in Washington’s West End, prices range from $575,000 for a one-bedroom apartment to $5,300,000 for the penthouse.
In addition to hotel residences like those at the Ritz-Carlton, which count as either a primary residence or a second home, many hotels also offer condominium space that reverts to the hotel’s regular inventory when it is not occupied by the owner.
Condominium hotels also give owners the opportunity to earn income through rent, and many owners look at these spaces as more investment than home, says Joel Greene, president of Condo Hotel Center, a Miami-based business that specializes in condominium hotels and hotel residences around the country.
“I’d say 85 to 90 percent of the buyers that I’m talking to don’t plan on using the unit more than a week or two,” he says.
Recently, Portsmouth, N.H.-based Lodging Econometrics, the real estate authority for the lodging industry, released its 2006-07 development forecast, predicting rapid growth for hotel residences, condominium hotels and timeshares.
Of the 377,000 hotel rooms under development in the United States, 30,500 are designed to be condo hotels, with an additional 70,000 units designated as permanent hotel residences that won’t be rented out to anyone else.
According to the National Association of Realtors, that’s less than 10 percent of all vacation homes and investment properties in the country. But interest and investment in this building type seems to be growing.
“A lot of the people we get are empty nesters who are still working but don’t want to keep up that large home in the suburbs,” Mr. Hall says. “But they want the same quality of that home, and the same quality of life.”
Although the hotel residence concept has been around since the 1970s, interest waned in the late 1980s thanks to the 1986 Tax Reform Act that eliminated tax shelter benefits for the properties. But now, alterations in market and lifestyle have caused perceptions to change.
“It’s a real niche specialty,” Mr. Greene says. “The baby boomers have more disposable income than they ever had before, and often their parents have gone and left them some money, as well. They’re skittish about the stock market since 9/11 and are looking for a hassle-free real estate deal.”
And they don’t shy away from paying for the luxury of staying at an ultra-luxury establishment. “There’s a pride of ownership that’s associated with staying at a place like the Ritz-Carlton,” Mr. Greene says. “It’s like having a certain kind of car.”
Prices for condominium hotels vary with the market and location, Mr. Greene says.
“You can pay $79,000 for a studio in Orlando that you can rent for $50 a night or much higher for something New York that can bring in $1,500 a night,” he says.
For a buyer, costs may be a good deal higher than for a conventional condominium. But a virtually guaranteed unit in a vacation hot spot is a definite plus, and being able to enjoy the various amenities a good hotel provides is a bonus.
“It’s a vacation home with no headaches,” Mr. Greene says. “You don’t have to deal with calls at three in the morning about the plumbing backing up and you don’t have to work at finding a renter.”
Typically, the hotel management company will charge for marketing and maintaining your unit — usually about 50 percent of rental income. Owners like the feeling that they are “in good hands,” Mr. Greene says, and being managed by an internationally known hotel company is part of the package.
Some management companies may stipulate how often you can rent out your unit and even how you can decorate. Like any hotel guest, condo hotel owners are often subject to check-in and checkout times.
But a condominium hotel is not a timeshare: Buyers own the unit outright and pay property taxes and insurance, as well as maintenance fees.
Developers like condominium hotels because they get an injection of outside capital from buyer’s deposits and higher prices per square foot.
A traditional hotel developer usually comes up with about 30 to 40 percent of the equity; for a condominium hotel, the investment is far less since the developer is banking on projected sales.
“It’s a great way to infuse revenue into a project,” Mr. Greene says.
Potential buyers may want to consider purchasing pre-construction, when prices for units tend to be less expensive. But realize that you won’t be able to rent out your unit until the project is completed.
Owners of condominium hotels may also earn income from renting the room to other guests. But appreciation is hardly guaranteed, financing may be more difficult to find than for a primary residence, and even income from guests may be subject to vagaries in the market, travel or other conditions. You may find that you cannot make use of the hotel amenities yourself if someone else is renting your property.
Finally, there are hotel conversions, when an entire hotel is converted for condominium use. These types of conversions are popular, Mr. Greene says, because it’s a chance for the developer to inject new capital into an aging property.
Perhaps the best-known hotel conversion in the Washington area is the transformation of the aging Watergate Hotel in Foggy Bottom to luxury condominiums. Walls will be taken down, old floors ripped away, and the entire space will be reconfigured to provide a new level of luxury.
“It’s a completely unique project,” says Jeff Neal, principal of the Monument Realty, which is developing the property.
Built in the 1970s, the Watergate Hotel had not aged particularly well, Mr. Neal says.
“It has underperformed as a hotel,” he says. “A modern destination needs facilities that will make it competitive in the market.”
Yet the very same thing that took the old Watergate hotel out of the mainstream — location — is just the thing that make the Watergate condominium spectacular, Mr. Neal says.
“Its location by the river and views of the city will enable us to build a luxury product at price points that haven’t been seen in the Washington area,” he says.
Mr. Neal expects they will charge about $1,000 per square foot for the units, which will range from an 850- to 900-square-foot one-bedroom home to a three-bedroom penthouse expected to bring in $3,000,000.
Of course, new owners in the Watergate complex won’t get to enjoy hotel services like daily housekeeping or the concierge. In fact, the only thing left of this old hotel will be the building’s familiar exterior.
What’s the key for a successful hotel residence or condominium hotel? Actually, there are several.
- Know your market. If you are considering a condominium hotel, consider the tourist potential of the area. Check for occupancy rates and see how local tourist destinations are drawing.
- Consider the viability of the adjoining hotel. If that’s not doing particularly well or guests are complaining about services, you may want to rethink your purchase.
- Good, reputable management is everything. Much of the viability of upper-end properties comes because of the cachet and reputation of the companies involved. Midlevel and lower-end companies might not do as well.
