hotels articles

Hoteliers in resort locations are selling individual units as condominiums. Not only is this an opportunity to own a second home in some of the country’s favorite playgrounds, promoters say, but owners can look forward to some income when the property’s management rents the room out to guests.

Realtor Christian Charre, a senior vice president with Jones Lang LaSalle, markets hotels throughout the Americas and the Caribbean. “If you buy a residence in Florida that you use maybe two to four weeks a year, having a professional company renting the room for you the rest of the time — when it would otherwise be empty — can offset some of the expense. And you still own a piece of the beach,” he said.

It sounds like a pretty good deal, but the facts show condo- hotel consumers would be wise to check the closet for financial skeletons.

“Condo-hotels are usually upscale, full-service developments in the strongest hotel markets,” said Tim Ford, vice president of operations at Lodging Econometrics, one of few companies tracking the trend.

Hotels undergoing conversion run the gamut from the ultra luxurious to more modest family-style lodgings. Ancient City Hospitality Group plans to convert the Casa Del Mar Inn & Suites. The property is a Spanish-style waterfront luxury hotel in Vilano Beach near St. Augustine, Fla. Sales prices for Casa Del Mar’s 94 rooms, ranging from 350 to 500 square feet, start at $329,000.

The driving force behind the trend is the preference bankers show to hotel developers who come to them with preconstruction contracts in hand. “A condo-hotel is a financing mechanism to shift the risk to individual owners,” Charre said.

The financing structure of a condo-hotel also sets them apart from superficially similar products such as time-shares or fractional ownership, said George Kovac, a real estate attorney in the Miami office of Stearns Weaver Miller. Consumers who choose those options buy occupancy rights for specific time periods in shared properties. Buying a condo-hotel is a straight real estate deal. You don’t ever have to rent it out if you don’t want to, and if you do, you’re not obligated to use the on-site management company.

Owners who opt to put their rooms into the hotel inventory agree to a number of ground rules, Charre said. First, forget about calling a decorator. Your room will have to match all the others in the hotel. Second, he said, “in general, especially if it’s operated by a major chain, there will be restrictions as to the amount of time an owner can use it.” He said this is particularly true during peak seasons.

These terms are spelled out in the rental agreement between individual owners and management and are not negotiable, Kovac said.

TYPICAL ARRANGEMENT

In a typical arrangement, Charre said, “the hotel operator takes 10 percent off the top for cleaning the room, direct reservation costs and so on. There’s a 50-50 split on the remainder between hotel and condo-hotel owner.”

Owners have the same expenses as they would with a residential condo property — mortgage, real estate taxes, insurance and condo association fees — but the unit price is higher. “They sell at an average of $800 to $1,000 a square foot, as opposed to $400 for a residential condo,” he said. “I don’t know of a single property where renting the room out would cover all costs,” Charre said.

As is true of all new ventures, it takes time to work out kinks that might be difficult to foresee. Before delving into this market, prospective owners should be clear about what they’re looking for. Condo-hotels don’t make good investment properties. They do make relatively affordable second-home options in some very expensive locales — with an opportunity to recoup some of the expenses.

As condo hotel development continues to boom, a new organization, The National Association of Condo Hotel Owners, provides consumers with tools and information to help them better evaluate and enjoy a condo-hotel purchase.

The Association furnishes members with access to their unique and exclusive evaluation tools as well as a network of resources to enhance their ownership experience.

Condo hotels are hotels in which some or all of the hotel’s rooms are sold to individuals as condominium units.

“While the condo hotel concept is not new, it has exploded in the past three years and dominates the industry today because it has tangible advantages both for the consumer and the real estate developer,” said Dante Alexander, the Association’s President and CEO.

According to Smith Travel Research, as of March 2006, condo hotel rooms make up 98,142 rooms or 19.5% of the hotel rooms currently under development in the U.S.

With a horizon full of new developments, The National Association of Condo Hotel Owners’ website (www.nacho.us) supplies members with proprietary tools and benefits to help them navigate this surging industry

Dante Alexander is also President and COO of Hybrid Lodging LLC, brings more than twenty years of senior management experience in the hospitality industry, including the areas of finance, operations, and development.

His strong leadership skills are linked to his broad range of experience with Starwood Hotel & Resorts Worldwide gained over the course of his eight year tenure where he is credited with enabling the company’s explosive growth from 33 hotels in 1996 to one the world’s leading companies.

For years, the neighboring communities of Crystal City and Pentagon City were justifiably derided as a zone of concrete office compounds. Condo buyers usually overlooked them in favor of areas with more pizzazz. Think: Logan Circle, Clarendon, Bethesda.

But, quietly, over the past few years, these neighborhoods near Ronald Reagan Washington National Airport have experienced a rebirth, the sort of urban renaissance that’s drawing buyers to other areas of Arlington. In fact, Northern Virginia’s twin cities may just be the best-kept secret in today’s condo market.

But what’s finally encouraging people to buy here? First, the neighborhoods arguably boast the best transportation and transit in the D.C. region. This means stops on Metro’s Blue and Yellow lines in both Crystal City and Pentagon City plus a Virginia Railway Express station. Reagan National Airport itself is within walking distance of most of Crystal City. There’s also fast access to interstates — and a direct connection to the Mount Vernon Trail.

Second, the area has recently gotten what amount to two new town squares. A pair of retail, restaurant and office complexes, Pentagon Row and Crystal Drive now allow residents to work, dine and shop without getting into their cars.

To be sure, you’ll find fewer condos in Crystal City and Pentagon City than in the Rosslyn-Ballston corridor, especially fewer new construction projects. But the apartments on the market can be good values, according to realtors, residents, developers and Arlington County officials.

Pentagon City and Crystal City also seem to be on the verge of a major transformation. Over the past few years, the high-rise hotels and office parks that have made Crystal City a business destination have gained new neighbors like open-air cafes, award-winning restaurants and many, many shops. Such buzzy spots within walking distance of each other add up to a live-work-play neighborhood.

“Not many neighborhoods can check all the boxes that Crystal City/Pentagon City [can],” said Mara Olguin, the marketing vice president for Charles E. Smith Commercial Realty, which owns 7.4 million of the 11 million square feet of office space in Crystal City. Her company is responsible for much of the area’s new vibe, having brought in ventures like the haute Mexican restaurant Oyamel and PBS.

Retail-mad Pentagon Row has also invigorated Pentagon City. A sort of modern village green (sans grass), the complex includes an outdoor ice skating rink (in colder months), spas, restaurants and lots of shops.

The Row’s retail detail ranges from indie faves like designer-jeans peddler Denim Bar and crafts boutique As Kindred Spirits to chains like Sur La Table and World Market. All are located on or near a courtyard with benches and surrounding sidewalk cafes, which serves as a gathering spot for residents of the thousands of apartments and condos within strolling distance.

Tony Iallonardo nabbed a condo at Pentagon City’s Cavendish development about a year and a half ago, during the real estate go-go period. “I was part of that hysteria. It was a game of musical chairs, and I didn’t want to be left without a chair,” said the 37-year-old Iallonardo, a public relations executive at a D.C. environmental organization.

Iallonardo home-hunted in many of Arlington’s hottest ‘hoods, including Rosslyn, where he had been renting an apartment. Dissatisfied with the “war zone” of construction and noise in Rosslyn, Iallonardo chose a $250,000 one-bedroom in more tranquil Arlington Ridge — a few minutes’ walk from Pentagon Row.

Ultimately, Pentagon City’s layout impressed him the most. “The growth that has happened in the Pentagon City/Crystal area has been smarter than the growth that has happened just outside,” Iallonardo said. He was particularly pleased with the area’s pedestrian-friendly walkways and lack of gridlock.

The Arlington Ridge subset of Pentagon City holds a number of older condominiums, including Horizon House, The Representative and The Ridge House. Iallonardo’s building is nearly 50 years old. Because his particular unit had not been refurbished in 20 or 30 years, he did have to spend about $15,000 for new floors and kitchen and bathroom renovations.

But he considers the extra effort a bargain for the location. “In my mind, Pentagon Row is sort of my patio — the one that I wish I could afford,” Iallonardo said. “The prime factor for me, living in Arlington in general, is the ease with which I can get into the city for work and get out of the city. In addition, [I like having] the ability to own a car and know that I won’t have to pay an exorbitant amount to park it.”

Iallonardo’s walk to the Pentagon City Metro station takes less than 10 minutes. Most of his trek goes through the Fashion Centre at Pentagon City, a shopping mall attached to the Metro. Anchored by Nordstrom and Macy’s, the mall is another draw for many residents and visitors.

WHITE PLAINS, N.Y. — Starwood Hotels & Resorts Worldwide, Inc.[R] (NYSE:HOT) announced today that the new Westin[R] St. Maarten Dawn Beach Resort & Spa will open on the Caribbean island of St. Maarten on December 13, 2006. The property will fly the Westin flag under a license agreement and is developed, owned and managed by Columbia Sussex, developer, owner and operator of more than 85 hotels and seven casinos around the world.

The resort will offer 317 guest rooms and suites (most with ocean views), multiple oceanfront dining options, two lounges, a full-service spa, a casino, retail shops, the island’s largest freshwater infinity pool with 17 pool side and beach cabanas, a hot tub, swim-up bar and expansive meeting and event facilities. Ninety-nine for-sale condominiums are located on the resort grounds and comprise The Westin St. Maarten Dawn Beach Residences. The condominiums are currently under development and range in price from $895,000 to $2 million. Owners will enjoy full access to all of the resort’s services and amenities.

“Expansion in the Caribbean is key to our growth strategy,” said Sue Brush, senior vice president of Westin Hotels & Resorts. “A resort of this caliber on the magnificent Dawn Beach is an ideal addition to our global collection of hotels. In keeping with the Westin brand promise, guests at The Westin St. Maarten Dawn Beach will benefit from relaxation and personal renewal.”

Situated on Dawn Beach, the best of the 37 pristine beaches on the 37-square-mile island, the resort and condominium homes feature balconies, French doors and oversized bathrooms. All of the resort’s guestroom suites and residences feature the Westin brand’s signature Heavenly Bed([R]) and Heavenly Bath([R]). Guests of the resort can also enjoy the WestinWORKOUT([R]) Powered by Reebok fitness facility and WestinWORKOUT([R]) Rooms, for those who prefer to exercise in the privacy of their own room.

Resort dining fuses local island flavor, uncompromising service, quality and spectacular views. Five dining options exist and include “Ocean,” the indoor/outdoor casual dining restaurant serving breakfast, lunch and dinner daily; “Aura,” a French/Vietnamese fine dining restaurant with both indoor and outdoor seating; “Liquid,” the swim up bar and an oceanside deli. Ocean views are a feature at all resort restaurants. Additionally, 24-hour room service is available.

The 10,124 square-foot Hibiscus Spa, specializing in massage, is the largest and most luxurious on the island with 13 treatment rooms. Facials, manicures, pedicures and body treatments are offered, as well. The spa features the Decleor product line which uses aromatherapy and the most active extracts of aromatic plants and essential oils for skincare.

The resort can accommodate events both large and small with more than 20,000 square feet of flexible meeting and event space. Features include approximately 10,000 square feet of outdoor meeting space, three boardrooms and a 10,000 square foot ballroom that can divide into five separate rooms — eight rooms total making it an ideal destination for weddings as well as business conference venues.

About Westin Hotels & Resorts

Westin Hotels & Resorts[R], with more than 127 hotels and resorts in more than 31 countries and territories, is owned by Starwood Hotels & Resorts Worldwide, Inc. Starwood[R] is one of the leading hotel and leisure companies in the world with approximately 850 properties in more than 95 countries and 145,000 employees at its owned and managed properties. Starwood Hotels is a fully integrated owner, operator and franchisor of hotels and resorts with the following internationally renowned brands: St. Regis[R], The Luxury Collection[R], Sheraton[R], Westin[R], Four Points[R] by Sheraton, W Hotels[R], Le ME[umlaut]ridien[R] and the recently announced aloft(SM) and ELEMENT(SM) Hotels. Starwood Hotels also owns Starwood Vacation Ownership, Inc., one of the premier developers and operators of high quality vacation interval ownership resorts. For more information, please visit www.starwoodhotels.com.

(Note: This press release contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties and other factors that may cause actual results or events to differ materially from those anticipated at the time the forward-looking statements are made. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results and events will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.)

Irving, Texas — Riding on a wave of development projects in San Diego, Orlando and Atlanta, Omni Hotels is stepping up its growth initiative.

Earlier this year, the company brought John Rosen on board as v.p. of acquisitions and development.

“We’re very interested in not only expanding the brand but also expanding our real-estate investment holding in the hotel industry,” Rosen said.

In 2004, Omni, a privately-held company, opened the 511-room Omni San Diego Hotel and the 730-room Omni Orlando Resort at ChampionsGate. The Omni Hotel at CNN Center in Atlanta opened a 600-room, $100-million addition in late 2003.

Omni has spent a lot of time cleaning up its portfolio since being acquired by TRT Holdings in 1996, according to Mike Deitemeyer, president. The company acquired or built properties in major cities, disposed of some assets and renovated all other properties.

Omni’s 40-hotel portfolio consists of 28 owned and managed properties, five managed properties, four franchised properties, two leased and managed properties and one hotel under development for a total of 15,155 guestrooms.

“If you look at how the company is set up and the balance of the portfolio and the balance of our operating philosophy, there’s a lot of opportunity going forward,” Deitemeyer said. “We are now pushing off an incredible amount of cash flow from our organization and we need to redeploy that.”

Scott Johnson, v.p. of acquisitions and development, said the company has something that is lacking in the marketplace.

“We’re a company that brings a combination of a recognized upscale flag, a very talented management team and an enormous amount of capital that we can bring to projects,” he said. “Those three things put us in a very strong position to be a major player in the upcoming years.”

Omni’s next project will be a 600-room convention center hotel possibly with a condominium component in Fort Worth, Texas. The project is scheduled to break ground in early 2006 and open in 2008, according to Johnson.

The company expects to finalize projects in California and Washington within the next 90 days. Possible condo-hotels in the Midwest and acquisitions in Florida also are in the works, Rosen said. Toronto, Seattle, Vancouver, Scottsdale, Ariz., Palm Springs, Fla., and Minneapolis also are target markets for Omni. The company is looking to grow in New York, Washington and Chicago, where Omni properties are already located.

Because the Omni Orlando is outperforming its budget, golf and spa resorts also are a focus for the company.

All in all, the company plans to add five “high-quality” hotels to its portfolio each year, Rosen said.

“But we’re not tied to any growth thresholds that would lead us to do deals that don’t make sense,” he added.

Achieving AAA’s four-diamond status is a goal, Deitemeyer said. Eighty-five percent of the hotels already are there.

“We’ve found a way to accomplish [success] through capital deployment and more importantly through the right type of service initiatives,” he said. “If you look at the amenity creep in our industry, a lot of what we’ve done over the last five and six years is continue to push our service.”

Deitemeyer said Omni’s top two hotels, the Omni Shoreham Hotel in Washington and the Omni Parker House in Boston, are scheduled to get new bedding and other amenities.

“That shows you the amenity the consumer wants is service and execution of service,” he said. “You can have all the amenities in the world, but if you don’t get the reservation right at check-in, none of that matters.”

Challenges, concerns

The biggest concern for Omni is the evolving labor market, Deitemeyer said.

“We have low turnover, we’re proud of our associate base, but there’s outside influences that we continue to manage through,” he said. “Especially as the economy rebounds and there’s more job opportunities in the service sector, it becomes very difficult.”

Disrupted by union disputes, rising health-care costs and visa issues, labor is the most volatile expense, Deitemeyer said.

“We mitigate all of that by focusing on the right type of leadership,” he said. “An individual’s value is defined more by relationships, their feeling of worth to the organization.”

Johnson and Rosen cited the challenge of increasing awareness of the company to the investment community.

“We’re ramped up and we’ve grown our development department extensively this year, and we’re ready to be in the forefront of deals where in the past we’ve been quiet,” Johnson said. “We’re not going to be quiet any longer.”

Elad Properties, the new owners of the Plaza Hotel, have confirmed that they a planning a conversion to luxury condominiums.

However, the residential component is only part of Elad’s spectacular plans for the landmark building.

Mike Naftali, president of Elad, announced that the hotel will be closed in April for a series of renovations, to re-open at the end of 2006 as a mixed-use property, complete with hotel rooms, condos and an exclusive department store.

Elad is planning to spend $100 million to “help return the Plaza to the position of prominence it enjoyed throughout most of the 20th century,” Naftali said in an official statement.

To that end, the top 12 floors of the building will be turned into 200 luxury condo units, ranging in size from one to four bedrooms, while the lower levels will house 150 hotel rooms and a 160,000 s/f department store described as “even more exclusive than Saks Fifth Avenue.”

The new, improved Plaza is likely to attract a whole range of investors, according to New York real estate experts, including Europeans looking for a second home in the city and retired baby boomers eager to take advantage of hotel amenities.

“I think the buyers will be mostly secondary or tertiary residents, entertainers who want to play in the city, out-of-town financiers, a lot of Europeans will have interest,” said Daren W. Hornig, president of the Quest Group. “I don’t see it as a primary residence–the largest unit will be 3,500 s/f, which is large, but an uncommon size for a typical New York family.”

Esther Muller, of Esther Muller Consulting, Inc., thinks the units at the Plaza will be coveted more for the investment potential than anything else.

“In general, the hotel to condominium conversions, not only at the Plaza, but everywhere, serve those investors who buy their second or third home and also see it as an additional opportunity for their real estate portfolio,” she said. “It’s really a perfect investment in one of the most beautiful locations in the world.”

As far as prices are concerned, Scott Durkin, chief operating officer of the Corcoran Group predicts that the condos will bring in anywhere from $2,500 to $3,000 per s/f.

“I think most of the condos will be facing the park, so you are talking well over $2,500 per s/f,” said Durkin. “That is what they get now in the tower at the Pierre, which is right across the street.”

In addition, the announcement that Elad is looking for a department store for the property has retail brokers holding their breath.

“Harrods has looked in New York and they seem a likely candidate,” Faith Hope Consolo, chairman of retail leasing and sales with Prudential Douglas Elliman.

Elad Properties bought the building in last August for $675 million.

Platinum Condominium Development LLC, a joint venture between Marcus Hotels and Resorts and Diversified Real Estate Concepts, plans to build a luxury condominium hotel in Las Vegas. The Platinum Suite Hotel & Spa will feature 255 condo units, a spa, indoor and outdoor swimming pools and 8,440 square feet of meeting space. Construction is expected to begin in the fall, and the opening is scheduled for early 2006.

Novare Group and Wood Partners are developing a second tower–a 26-story hotel and condo high-rise–at Atlantic Station in Atlanta. The tower will contain 101 hotel rooms and 404 condos. Construction is scheduled to start this month, and a grand opening is scheduled for the fall of 2005. The hotel suites will be a first for the mixed-use complex.

Feverish fundamentals in the hospitality industry continue to fuel a gold rush by developers looking to replace the thousands of hotel rooms lost to condo conversions in New York.

According to the latest hospitality research report from Marcus and Millichap, heady times are expected to persist for the sector, driven by a projected two percent increase in business travel and 1.8% gain in leisure travel.

Nationally, builders are expected to deliver over 90,000 rooms this year-a two percent increase on last year. In New York, more than 5,000 rooms, including 1,000 rooms in the outer boroughs, are either planned or expected to begin construction soon.

“It’s going on everywhere,” said Faith Hope Consolo, chairman of the Retail Leasing and Sales Division of Prudential Douglas Elliman, who is exclusively marketing the retail space at Muss Development’s mixed-use Brooklyn Renaissance Plaza, which includes a 280-room expansion of the New York Marriott at Brooklyn Bridge.

“From the fringes of Times Square to the Financial District and all the way down to Soho and the East Village-that’s the trail.”

Marcus and Millichap associate, Mike Forrest, admitted hotels are the “new flavor of the month” and noted that, as the housing market begins to experience “a little bit of correction, a lot of those development sites that were slated for condominiums are now looking at a mix, with condominiums on top and a hotel play in the base.”

Indeed, Forrest revealed that he just overhauled his marketing campaign for an east side site located in the mid 30s. “Initially, we started marketing it for conversion to residential, but we noticed that we were getting more activity from hotel people.

“We always thought the price we were marketing it at precluded it as a hotel, but demand is so great and, because of the perceived or actual pull-back in the condo market, hotel buyers are willing to pay a lot for these sites.” According to Forrest, the flattening of the condo market has yet to impact land prices that continue to remain extremely high in the city. As a result, hotel developers are seeing more opportunity in buying up buildings they can convert.

“They don’t see value in building a hotel from scratch,” said Forrest. “But if they go through all of the costs [associated with conversion to hotel] it makes sense to pay $400,000 per key for an asset that, on the outside may not appear to be worth it. It has become easier to stay the course and go 100% hotel than it was couple years ago.”

Developers such as McSAM Hotel LLC are also bucking the trend towards high-end hotels and blazing the current trail of boutique developments, which Forrest predicts will gather even more steam this year.

“McSAM is building a boutique hotel mid-block on West 26th Street that’s really breaking the mold,” said Forrest. “Before, you really had to achieve a certain amount of keys to justify the costs of running a hotel, but the boutiques have done so well in Manhattan-those located on side streets with 75 to 125 rooms on 50ft lots and not the 350 room corner lots that were so typical of New York in the past–and are demonstrating there’s enough demand for those rooms without having all the bells and whistles of a five-star hotel.”

Consolo agrees the new boutiques have a bright future, explaining, “We have so many European tourists and that’s what they seem to gravitate to–they have major hotels back home, but many more boutique hotels and that’s what makes them feel like they have a home away from home.”

She said the sector will make good watching over the next several months as the jittery residential market finds its footing. “We’ll have to wait until the last quarter to see how many of the condo conversions actually get done,” explained Consolo. “These sites may be snapped up by hoteliers to fill the glut.”

But while the boutiques are booming, bigger scale projects are not being ignored either. Developers are mulling proposals for a Javits Convention Center Hotel; Madison Equities is to build a 500-room hotel at West 55th Street, at Eighth Avenue and Macklowe Properties is reported to be planning a hotel-condo development at the corner of Madison Avenue and 53rd Street.

Bottom line, according to Forrest, is there seems to be room for everyone right now as the tourism market shows now sign of slowing.

“People didn’t think the tourism market or the economy would come back as quickly as it did after 9/11 and those factors together have led to unyielding demand for hotels.”

Jose Alvarez, senior vice president of the hospitality and leisure division at Trammell Crow, agrees the 5,000 hotel rooms in the pipeline will not saturate the market any time soon.

“New York City’s lodging market is significantly under supplied,” said Alvarez. “With market occupancies in the mid 80% range, many guests are forced to pay tremendous rates and will just not stay in the city; or worse, are being turned away and forced to stay in markets outside the city.

March 16–This year’s highly anticipated 19th Annual Co-op & Condo Expo, which will include 220 booths, will be held at the New York Hilton, 1335 Avenue of the Americas. Seminars will cover such topics as the future of the mortgage market, the future of wireless communication, cost-saving energy strategies, solving lawsuit problems and working with designers. Sponsors include Time Warner Cable, Con Edison of New York, Meridian Capital Group, the Law offices of Stark & Stark and Sygrove Associates Design Group, Inc. Admission is free, but organizers request that guests pre-register via the Web site at www.coopexpo.com. The exhibition floors will be in Americas Halls I and II at The New York Hilton, open 9 a.m. to 5 p.m., with the seminars held on the third floor in the Rhinelander Room.