High hotel rates, a hot rental market and still lofty apartment prices make Manhattan a new breeding ground for time shares, a housing option more often associated with resort destinations like Hawaii or Mexico.
Three brand-name hoteliers are bringing time shares to Manhattan’s urban landscape, where the model may prove profitable.
Hilton Hotels last month announced it would build the first ground-up time share development in the city on West 57th Street on a site it bought in June.
In late September, Global Hyatt Corporation signed a deal to buy 485 Fifth Avenue, which it will convert to a hotel with time shares available on higher floors.
The St. Regis Hotel on 55th Street and Fifth Avenue is also selling time shares on two floors.
“It’s amazing these brands haven’t done so prior,” said Mark Gordon, managing director and principal of real estate investment banking firm Sonnenblick-Goldman.
Manhattan attracts two types of customers that are key to a successful time share, said Gordon.
“There are national visitors who want to visit on a regular basis and people in the tri-state area who want to spend a certain amount of nights per year in New York,” he said.
The hotel market, the apartment rental market and the sales prices of apartments have lined up to make it difficult — and expensive — for people who want to be in New York to come here regularly.
“A few dynamics are converging. Hotel occupancy will be at 84.5 percent by the end of the year,” said Bjorn Hanson, principal in the hospitality and leisure practice at PricewaterhouseCoopers. “And prices for condos and apartment leases are up at a time when people want to stay in the city. It is making it difficult to find assured availability.”
Time shares, which allow buyers the right of occupancy on specified dates, are able to offer “assured availability” in set blocks of time, helping visitors to avoid hotel rates that have increased by 15 percent two years in a row.
The average Manhattan hotel rate stood at $241 a night at the end of August, the most recent data available, according to PKF Consulting, while the average rent in Manhattan stood at $2,641 a month by the end of September, according to Citi Habitats.
Apartment prices are dropping, but the average price of more than $1.2 million is still pretty steep, according to appraisal firm Miller Samuel.
The Hilton time-share plan offers a weekly ownership program, while both the Hyatt and St. Regis offer fractional ownerships.
“Time share owners have the high assurance of availability but not the cost of a condo to carry,” Hanson said.
Depending on the product and restrictions, prices range for fractionals from a low $335,000 to a high $700,000, which allows buyers to use an apartment one month out of the year every year. For weekly ownership, prices range from $20,000 to $40,000, which allows buyers to use the apartment one week of the year every year, with rates varying for holiday weeks and extra weekends.
But the idea of Manhattan time shares is a largely unproven one, said John Fox, senior vice president at PKF, which tracks hospitality trends. “The jury is still out,” he said.
There are only four registered time share projects in Manhattan — the Manhattan Club, the Phillips Club, the Hilton and the St. Regis. The Hyatt project is still in the works and not yet registered.
The first time share in Manhattan opened in 1996 at the Manhattan Club, located on 56th Street and Seventh Avenue. The former hotel was converted to time shares in four phases. The club, not affiliated with a hotel chain, has sold over 13,000 weeks to owners.
“Originally, it began with ‘buy one week,'” said Allan Starr, a lawyer at Starr Associates who has worked on the offering plans for the Manhattan Club and the St. Regis. “But as the needs of buyers changed, it became more flexible. You could buy individual days if you need to stay in the city for opera nights. You could buy the holiday season, which guaranteed Christmas, or buy into the biannual program.”
The financial and brand-name backing of major hotel chains could bode well for their New York time share projects.
“There are high costs for marketing units for sale, but a hotel can market on a cost-effective basis,” Gordon said. “They can use the leverage of their in-place marketing infrastructure and sell to existing customers.”
While Hyatt and the other hotel chains sell time share inventory, Gordon added, they can also rent the rooms on a nightly basis.
“Over the last year, three of the leading [hotel] companies have committed to projects — it’s a sign of the future,” Gordon said, who added it’s a matter of time before other time shares are developed in New York.
With an estimated 6,000 hotel rooms now slated for development in Manhattan, some hotels could transition into time shares depending on how the current spate of projects fares.
“Developers are keeping flexible plans; they want the option to do high-end time shares,” said Hanson.
Hanson said time shares also let owners participate in exchange programs. An owner of a time share in New York can decide to exchange a stay for time at another time share in San Francisco or Miami, places where time shares tend to be more common.
The Hilton project on 57th Street is being built through the company’s time share division, Hilton Grand Vacations Company. Construction of the 28-story tower between the Avenue of the Americas and Seventh Avenue is scheduled to start in January 2007. The project, which will include 161 units, is slated for completion in early 2009.
“Hilton has achieved a development milestone that has never before been accomplished in the New York hospitality industry,” said Antoine Dagot, president of Hilton time share division. “The ability to build, from the ground-up, a time share product.”
Dagot said the project is following on the success of the conversion of two floors of the Hilton New York at 1335 Avenue of the Americas into time shares starting in 2002.
In the Hyatt project at 485 Fifth Avenue, time share units are expected at the top of the converted building with the hotel below, the New York Post reported. The building, which faces the New York Public Library and Bryant Park, is the former headquarters of Tommy Hilfiger and was being converted to condos by Belfonti Capital Partners and the Carlyle Group until they decided to sell it for $136 million.
In February, Starwood began selling time shares at the St. Regis Hotel. Buyers can purchase accommodations in 22 units.