DR. STEPHEN MEISEL, a radiologist in Los Angeles, had not heard of a condo-hotel until a year and a half ago when he checked into the Ritz-Carlton in Key Biscayne, Fla. Because of a reservation mix-up, he and his family were given a condo-hotel unit, a privately owned apartment rented by the hotel, instead of a hotel guest room. “I said, ‘What is that?’ I had no idea,” Dr. Meisel recalled.
But Dr. Meisel was so impressed with the condo, which had a kitchenette, a washer-dryer unit and an ocean view, that he quickly bought a two-bedroom unit in the building for $1.8 million. Then he bought an adjoining studio for $500,000 and a one-bedroom for $650,000. Eight months later he picked up two preconstruction units, a studio for about $900,000 and a one-bedroom for about $1.2 million, at the W condo-hotel on South Beach.
While sales of homes and condominiums in much of Miami’s real estate market are sagging, many buyers are gambling on a new style of condo-hotel property that is backed by design-conscious hotels and located on expansive lots on Miami Beach. Although condo-hotels have been around for decades, it is only recently that trendsetting hotels have entered the field: besides the W, other boutique brands heading south include the Gansevoort, Canyon Ranch, the members-only SoHo House, and the Regent.
The lobby of the luxury condo-hotel will feature a three-story sculpture made of mangrove branches, designed by the architect David Rockwell, and an igloo in the 70,000-square-foot “leisure and lifestyle space.”
Miami is attractive for condo-hotels, said Michael Achenbaum, president of the Gansevoort Hotel Group, because it draws young, affluent tourists – the kind who would stay at the Hotel Gansevoort in New York’s meatpacking district. “I wouldn’t buy a condo-hotel in Tulsa,” Mr. Achenbaum said. “Nothing against Tulsa, but it doesn’t get the same occupancy and premium room rates.”
A condo-hotel in Miami can cost as much as a regular condominium. But because the unit can be rented when the owner is absent, with the revenue split 50-50 with the hotel, after service fees are paid, buyers hope to earn income from hotel guests. That was why Patrick Simeon, a real estate dealer from Queens, N.Y., bought a one-bedroom five months ago at the Gansevoort, paying $900,000. “The area and the hotel are known for luxury and restaurants and parties,” Mr. Simeon said. “With a place like that, you will always make money.”
Most of the new condo-hotels are north of Miami Beach’s quaint Art Deco district, known for its low-rise buildings, dense traffic and vibrant street life. The newcomers are on a section of beachfront above Collins Avenue and 21st Street that was home to high-rise hotels and condo towers dating from the 1950’s to the 1970’s. The large lots appealed to developers who needed room for spas, sports facilities, and more towers.
The amenities planned for the new condo-hotels are flamboyant, even by Miami standards. At the Gansevoort South, a makeover of the old Roney Plaza Hotel, rooms will be swathed in gray suede, and the pool area decor will include flaming fire pits at night. The $435 million W, a new 19-story building, will feature black ceramic floors in the rooms and a Bliss Spa.
Meanwhile, Canyon Ranch Living, a renovation of and addition to the 1950’s-era Carillon Hotel on Miami Beach, features a three-story sculpture in the lobby made of mangrove branches, designed by the architect David Rockwell, and an igloo in a 70,000-square-foot “leisure and lifestyle space.” The Regent features a glass-bottom pool.
Yet it is unclear whether these condo-hotels will make money from rentals or eventual resale. There are no reliable data on a secondary market for condo-hotels, and rental rates and occupancy levels fluctuate with industry cycles. Even thriving tourist towns like Miami have off seasons, and Florida’s fierce tropical storms can dampen visitor numbers.
“If you only consider rental income and expenses, it’s hard to justify buying these properties at these prices,” said Joel Greene, president of Condo Hotel Center, a real estate agency in Miami. Mr. Greene advised that, instead of expecting cash flow, would-be buyers should regard condo-hotels as a type of “hassle-free real estate ownership” and a second home that has a likelihood of appreciating in value.
Dr. Meisel, 62, said he was just about covering costs, with down payments of 20 percent to 30 percent, at his first condo-hotel units at the Ritz-Carlton. He expects to do at least as well at the W because of its flashier image and ocean frontage on Collins Avenue, where an aging Holiday Inn is being demolished to make way for the hotel.
Nely Galan, a 42-year-old television producer in Los Angeles who bought at Canyon Ranch, is counting on rental income, too. Two years ago, she paid around $500,000 for a unit designed for disabled use after seeing plans for the hotel’s “wellness community” on the beach. A year later she bought a larger, regular condo unit, with a lanai, for $1.9 million, in the mixed-use complex.
Long a devotee of the hotel’s spas and spiritual retreats, Ms. Galan figures she will use the condo, and possibly live there part of the year, and have no trouble renting the smaller unit, which has special features for people with disabilities, including a larger bathroom and wider hallways.
In With the New The Gansevoort, a New York trendsetter, is moving south with plans for a condo-hotel in Miami.
“People who come to Canyon Ranch want a healthier lifestyle, and they are older and wealthier,” Ms. Galan said. “Even if they are not disabled, who wouldn’t want a bigger bathroom?”
Developers like condo-hotels because selling preconstruction units helps them finance projects. Canyon Ranch, at $500 million, includes three towers and 600 units, including a hotel, a condominium and 151 condo-hotel rooms. “Basically, developers are selling the air up front and can use the money for construction costs,” said Jan D. Freitag, a vice president at Smith Travel Research in Hendersonville, Tenn.
For owners, however, fees can be steep. Costs include property taxes, maintenance charges, homeowner’s insurance and, most probably, a mortgage. Moreover, a service fee as high as $125 a day – for a two-bedroom at the Gansevoort South – is deducted from the gross rental revenue to reimburse the hotel for administrative costs.
In Florida, hurricane insurance premiums, which have more than doubled in the state over the last year, are another factor to consider. These costs are absorbed by the developer but may be passed on to owners in higher maintenance fees.
So far, sales have been brisk, developers say. Two years ago, Canyon Ranch sold out all units within six months at prices ranging from around $500,000 to $1.5 million. “Those who understand Canyon Ranch were drawn to it,” said Philip Wolman, chairman of WSG Development, a partner with Canyon Ranch on the project.
The W is also attracting those who enjoy the hotel’s style. Gary Brecka, chief executive of Life Asset Group, a life insurance company in Miami, paid just under $2 million for a 1,900-square-foot, two-story bungalow at the W South Beach. Besides the private “infinity-edge” pool and ocean views, Mr. Brecka, whose main residence is just a few miles away, said he liked “the atmosphere and European energy” at W hotels.
While sales of existing condos in Miami fell 37 percent in July compared with a year ago, according to the Florida Association of Realtors, the W has sold 63 percent of its condo-hotel inventory since January. Marketing began last December with a W-sponsored event during Art Basel Miami, an annual art fair that attracts a wealthy crowd.
David Edelstein, principal of Tristar Capital, a co-developer of the W South Beach, contends that the beachfront location and the W hotel chain’s reputation will trump any downward trend. In a softening market, Mr. Edelstein said, “I have always believed that Miami Beach oceanfront is immune, or at least, a last bastion of strength.”
Demand was so strong for the W’s larger, more expensive units, Mr. Edelstein added, that many one-bedrooms were combined to create larger configurations with dens, reducing the overall number of condo-hotel rooms to 419 from 511.
Still, Mr. Freitag, of Smith Travel Research, cautions that condo-hotels historically have a high attrition rate between planning and completion. Competition is growing, with around 50 projects currently in various stages of development in the Miami area. While it is unlikely that a well-financed hotel chain will abandon a project, Mr. Freitag says there are unanswered questions about this type of real estate.
“What if the hotel industry doesn’t do well and a hotel pulls the flag?” Mr. Freitag said. “You might be left owning a piece of the lobby of a different hotel. It can get messy very quickly.”
For his part, Dr. Meisel, the Los Angeles radiologist, said he was focused on the long-term financial prospects of his condo-hotel units and the chance to vacation at different locations. “With five properties you can move around and keep the rest rented,” he said. “I’m not concerned about any potential drop in value. They will both be good investments.”