The Real Deal
HOTELS CHECK IN CONDO BUYERS
By Alison Gregor
After a spate of partial and full conversions to condominiums, Central Park South, home to some of Manhattan’s marquee hotels, has become the locale of choice for real estate investors who want a semi-permanent address and pricey park views.
Though the venerable Pierre and the stately Carlyle hotels have long been in the apartment selling business – one triplex at the Pierre recently listed for an astounding $70 million – plans for at least partial conversion at the iconic Plaza and swank St. Regis signal a new wave of high-end condominium sales in the area.
In 2001, the developers of the top-floor residences at the Ritz Carlton Hotel at 50 Central Park South started a trend that rapidly gained momentum as travel dwindled after the Sept. 11 terror attacks, causing luxury hotel revenues to plunge.
Richard Born, principal of BD Hotels, said bringing in part-time residents as full-time owners makes economic sense. According to his back-of-the-envelope calculations (see related story, “When Hotels Should Go Condo”), a well-marketed condo can generate prices equivalent to 20 years’ worth of revenues for a luxury hotel room in an average economic climate.
For top-of-the line properties, that multiple could be even higher. The Plaza, at Fifth Avenue and Central Park South, and the nearby St. Regis, at 2 East 55th Street on Fifth Avenue, are expected to fetch prices of as much as $2,000 a square foot for their planned top-floor residences. The prospect of hefty profits has prompted industry speculation that there are similar plans in the works for the Stanhope Park Hyatt at 995 Fifth Ave. and the Sheraton Russell Hotel at 45 Park Ave.
Buyers will be spoiled for choice.
Renowned architect Charles Gwathmey has signed on to convert the old Windsor Hotel at 100 West 58th Street into condominiums for developers Yitzchak Tessler and the Chetrit Group. The 373-room Empire Hotel at 44 West 63rd St. is being converted to 125 luxury condominiums, also by the Chetrit Group.
Further away, at the Gramercy Park Hotel at 2 Lexington Ave., hotel developers Ian Schrager and Aby Rosen are reportedly creating 30 luxury condominiums among the hotel rooms.
“It’s not a new concept,” said Esther Muller, president and chief executive officer of Esther Muller Consultants, a real estate consulting firm. “If it’s managed properly, it can be highly profitable. It’s a great opportunity for the investor today to invest in a facility they can enjoy for themselves, and at the same time, they have equity build-up, cash flow that could be positive, and they have tax advantages.”
Muller, a condo-hotel enthusiast since her own purchase of a similar unit in Israel 15 years ago, said owning this type of residence gives a buyer freedom that regular apartment ownership doesn’t allow, since there’s often a 24-hour hotel staff maintaining the condo in the owner’s absence.
There’s also an anticipated appreciation rate on the condominium of between 5 percent and 10 percent annually, she said.
Though it’s a different proposition, economically and legally, the Inter-Continental Hotel at 110 Central Park South is converting from luxury hotel rooms to co-ops. Developer Anbau Enterprises is planning 65 units at the 27-floor former five-star hotel, about a third of the rooms it rented out. Prices haven’t yet been set, but are expected to range from $1 to $10 million per unit.
While the co-op unit values may not appreciate as quickly as condos, they may be better suited for people seeking a permanent, if pricey, address. The legal limitations on occupancy of a condo-hotel unit often require that owners only live there part-time.
Overall, industry observers say the recent spate of conversions in the Central Park South area makes sense because many tourists would prefer to stay elsewhere in Manhattan, such as the theater district.
That leads to some debate about who will be the primary market for the hotel-condo. Some say it will be Europeans, since the Euro is considerably stronger than the dollar. Others say it will be empty-nesters from the suburbs seeking a Manhattan pied-à-terre.
William Morris Hunt III, president of Coldwell Banker Hunt Kennedy, said exorbitant maintenance fees may determine who becomes a condo-hotel client. Developers may end up with corporations as buyers.
“I think it’s generally a different buyer from your average co-op buyer,” he said. “You can’t just show them this thing with an $8,000 monthly maintenance fee. That doesn’t make sense.”
A corporate buyer, however, has the financing, and in return, receives the flexibility of a condominium as opposed to a hotel suite, plus the hotel-quality service. There is also the branding of the hotel name to consider, Hunt said, to impress clients. “These are pretty special spots,” he said.