For nearly a decade, most builders in New York City have been convinced that the best and highest use for their land meant only one thing: condominiums.
That’s changing as hotels notch record revenues, which may make them a smarter move for real estate investment capital. Figuring they can’t beat ‘em, some important residential developers are joining them – folding hotels into their new high-rise condominium projects.
Developers say there are many advantages to adding an upscale hotel into a condominium. First and foremost, it’s a way to cash in on the hotel boom. The average rate of a hotel room in New York City in 2005, $293 per night, was 19.6 percent higher than the year before. At peak times, and there are many, top-end hotels were getting $1,000 a night for premium rooms last year. Occupancy rates were near 90 percent.
Before finalizing plans to build 123 Washington Street, a 53-story hotel/condominium in the Financial District that will likely house a W Hotel, with a total of 220 hotel rooms and 180 residential apartments, developer Joe Moinian commissioned a study by hotel consultant John Fox of PKF Consulting.
“Downtown is grossly underserved with hotel rooms for the square footage of offices,” says Moinian, CEO of the development group that bears his family name. The area has only 2,400 hotel rooms at present.
“When we have 100 million square feet of offices and close to two million people living and working Downtown and with the 9/11 site, which is expected to have over three million people visiting it in 2006, the number of hotel rooms are grossly too few.” By comparison, Moinian notes, the 300 million square feet of offices in Midtown are served by 32,000 hotel rooms.
“In the old days,” adds Moinian, “nobody built hotels Downtown because they had to write off Friday, Saturday, and Sunday. But today, you get more visitors on the weekend and your chance of getting a room during the week is much better.” And the visitors are not just budget travelers. The Ritz Carlton, Hilton, and the Marriott are all doing great business.
The largest single owner of Downtown real estate, over 5 million square feet, Moinian’s knowledge of Lower Manhattan leads him to expect the amenity-rich hotel will increase demand for the condominiums.
“My customers are young, professional, single or very young married couples, not people who have children,” he says. “They like to have access to good restaurants, bars, lounges, a gym, and to hang around with people their own age and profession. You can have a hotel with all these services and let the residential piggyback on the services.”
Stribling & Associates executive vice president Jacquelyn Sonenberg agrees that Downtown Manhattan is especially ripe for the hotel/condo concept.
“In the Wall Street area there are a great many people in finance who would be interested in pied terres,” she says. “When you buy into a hotel/condo you have all your services available to you – the maid service, room service, restaurants, laundry. It’s turnkey. And there are different tax benefits to owning instead of renting every time you want a hotel room.”
The first 25 stories of 123 Washington are expected to be a W Hotel, although as of this writing, the deal has not been signed.
“They run a certain atmosphere that most young people like,” says Moinian, “whether it’s the music, the models, the service, the chicness of the people they hire.” The building’s designer, Gwathmey Siegel Architects, is working closely with W to hone finishes to their standards.
The building will have separate entrances, lobbies and elevator banks at the base for the hotel and residential portions. The hotel lobby will have a lounge and high-end restaurant and a shuttle elevator to a more elaborate lounge lobby for the registration desk, and an outdoor restaurant overlooking Ground Zero. The hotel will include a fitness center, spa and meeting rooms.
The residential portion, on floors 26 to 52, will have its own 6,700-square-foot fitness and recreation space, though owners can use the more elaborate hotel facilities if they choose. They can also ring up maid and room service.
Construction is expected to start shortly.
“It’s like building two buildings on top of each other,” says Moinian, each containing separate HVAC and other systems. “The only thing these two buildings have in common is the land they sit on and a set of fire escapes and elevator shafts.” According to state Attorney General guidelines, he adds, “if you pulled out the hotel part, the condo building should be able to operate by itself.”
The Moinian Group is expected to receive $50 million in tax-exempt Liberty Bonds from the city’s Industrial Development Agency to help finance the $240 million project. Moinian was the first developer to build a residential Liberty Bond-backed project when he transformed 90 Washington Street into a 398-unit luxury rental building in 2003.
With reconstruction stalled at the World Trade Center site, Moinian hopes 123 Washington, with its chic W Hotel, will help spur activity around Ground Zero.
“I know why we’re not moving fast enough,” says Moinian. “It’s a little bit of politics, infrastructure issues, financial issues, and the lack of Class A product. I agree with Larry [Silverstein] that these office buildings should be built, but also people need shopping, transportation, and hotels. We need to bring in the right people to get it going.”
A hotel grows in Brooklyn, too
Another mixed-use condominium, the Smith, off booming State Street in Boerum Hill in Brooklyn, was all set to build office space on its first four floors, when, according to Leviev Boymelgreen project manager Brad Robertson, “we started getting calls from different hotel operators – not only nationwide chains wanting to expand into New York City, but people in Manhattan who want to move to Brooklyn. We started thinking the highest and best use for this area is a hotel.”
The building, at 75 Smith Street, is close to government buildings in Downtown Brooklyn. “There’s definitely a need for hotel space around those facilities,” says Robertson. “The only comparable hotel in Brooklyn is the Marriott, which has been doing very well.”
The change in plans, recalls Robertson, “wreaked havoc on the design. There were detail changes with the mechanical, electrical and plumbing. With an office space we would have had to supply core bathrooms and a standard office envelope with open floor plans.” The new design fills the space with rooms with bathrooms, but the interior design concept is yet to be determined. Boymelgreen has only just hired hotel broker CB Richard Ellis to find an operator.
The condominium portion, to include 50 apartments starting from the fifth floor, had a “soft” opening in November – nine contracts have been signed – and is now going full tilt. With interiors by trendy designer Nick Dine, the building is being marketed by the Sunshine Group, which has boiled its image down to two words, “Luxe + Pop,” aimed at upscale buyers in the gentrifying Atlantic Corridor section.
Placing a condo on top of a hotel provides apartments with an invaluable amenity: light and views, according to brokers.
“What we liked as the selling agents,” says Sunshine sales director Larry Kruysman, “is that the condominiums start on the fifth floor. We’ve cleared the rooftops of the surrounding neighborhoods. You don’t have any units that are down low, close to the street with limited views.” A new development across the street features 16 renovated townhouses, some of them landmarked, marketed by Corcoran.
The Smith has one line of one-bedroom apartments, starting at $550,000, and one line of three-bedroom units. The rest are two-bedrooms. The developer is holding onto the 10,000 square feet of retail space at ground level until a hotel operator is secured, in hopes of placing a high-end food service facility in the spot.
Construction of the building has just begun and occupancy is expected in January 2007.