In a trend that’s been around the New York City area for years, vacant condos and other upscale buildings in different parts of the country are finding new life as chic boutique inns.
Boutique hotels are becoming trendy for a number of reasons. They typically rent for more than big name hotels, and attract a different kind of clientele–the type of visitor who is willing to spend more money for personal, more intimate service.
They can pop up in a variety of places that a traditional hotel chain could never fit in the footprint, including historic districts and off the beaten tourist track. And they are a reasonable way to re-purpose vacant or hard to sell properties that otherwise might sit empty on the market for years.
The condo-hotel hybrid
There is also a product for properties in transition, where a developer would come in and convert a condominium property into a condo-hotel, which is a kind of hybrid. Or a developer building a hotel would use the condo-hotel model to finance his product, selling units to condo buyers as the hotel is built. Buyers would not live in the units full time, but would have use of the hotel amenities–sort of a vacation condo. The developer gains a stream of revenue, and both the developer and condo owners share the hotel’s revenues.
It also works the other way: underutilized hotels are noticing the condo-hotel model and many are intrigued by the concept, as well. So you can have condominium units being turned into boutique hotels. Hotels with excess vacancy rates and brand new construction units are being marketed as condo-hotels, or hotels can be converted outright to condos.
An article in the New York Times dated December, 2009 states the “condotel” is a dying breed. Popular in Miami and Las Vegas, when credit was tight, the article says banks are now unwilling to finance these animals for condo buyers. (Okay, so what ARE banks willing to finance these days? Seriously.) The article cites the floundering Plaza Hotel condotel.
Plaza Hotel condo conversion stagnant
In 2004, an Israeli billionaire bought New York City’s famous Plaza Hotel (sale price $675 million) and set out to convert the landmark into condos. He spent another $400 million on renovations over the next three years.
Today the 20-story building advertises 282 hotel rooms and 152 private condo hotel units. Fairmont Hotels and Resorts manages the building. The Plaza Residence’s website promotes “luxury condominium suites from $1.5 million” and “private residences condomiums from $2.5 million.” Initial sales were slow, although one unit sold in 2007 for a record $50 million. Of course, since then prices have dropped.
The units have been criticized as being still “too hotel-like” and according to a January news article, unit owners who have sold recently sold for less than they paid a few years back. No surprise there–that’s nationwide, not just unique to the Plaza, but the newspaper article reads like the owners blame the building itself, not the economy being in the toilet (read New York Times article).
The developer opened a series of luxury shops in the building’s basement in 2008, which are not doing well in the middle of the current recession. The iconic symbol of wealth in New York City — the storied hotel at the intersection of 5th Avenue and Central Park South — is struggling to survive in difficult economic times.
Flexibility is key to success
Until the market stabilizes, we’re going to see lots of properties changing use as owners and developers learn they must get creative. Condo not working out? Cannot sell units? Rent them on the internet as a trendy hotel. If the hotel is vacant, sell off units as condos. And if neither structure is perfect, create a hybrid product.
Real estate is never static, and certainly never boring. Commercial agents must learn to “think outside the box” when faced with a property that seems doomed to sit vacant.