Putting out The Ritz: When hotels go condo
Hoteliers in New York are converting grand old inns to condos. Now Washington has joined the trend, and more will follow suit.
NEW YORK (CNNMoney.com) - Many a famous landmark hotel sits on land that has become too valuable for the hotel's own good. The result has been a spate of grand old inns being converting to condo residences.
The trend has, so far, been mostly confined to New York City, where the world famous Plaza, the recently remodeled Drake, the Mark and the Stanhope will soon undergo a condo conversion.
But in Washington this week, the owners of the Watergate Hotel -- part of the Watergate complex of White House plumbers fame -- unveiled a plan to go condo. It's the first major D.C. hotel to do so. It surely will not be the last.
"The property is three times more valuable as a condo than hotel," said Michael Darby, founder of Monument Realty, the company converting the Watergate. Darby says one bedroom condos at the Watergate will start at about $750,000. Penthouses will go for $8 million to $9 million.
Nationwide in 2005, some $900 million worth of hotel properties representing 3,380 hotel room units, underwent at least partial conversion. That was more than double the previous year, according to Real Capital Analytics, which researches the commercial real estate industry.
Residential market trumps hotel business
The trend comes, surprisingly, as upscale Manhattan hotels have enjoyed a bonanza of record tourism, high occupancy rates, and near-record room prices. The average price for a room in Manhattan has risen beyond $225 a night, according to PKF Consulting.
The residential housing market, however, has been even stronger. "The condo market has put a lot of pressure on hotel owners to sell out," said Dan Fasulo, director of market analysis for Real Capital Analytics.
In addition to often occupying prime locations, hotels are good candidates for condo conversion because they usually offer more residential appropriate floor plans than, say, office buildings.
The trend to condo conversion is bad news, at least temporarily, for travelers -- as room supplies shrink, rates will rise, according to Fasulo.
"It will be a couple of years before new hotel construction will catch up in Manhattan," Fasulo said. Meanwhile, guests will pay through the nose to be where the action is.
In the rest of the country, the trend has not taken strong hold yet, although some hotels, such as the St. Regis in Los Angeles's Century City neighborhood, have announced condo conversions.
Cities that are prime candidates for the trend are any that have hotels sitting on prime, downtown lots and where housing prices have ballooned, such as Boston, San Francisco, and Chicago.
What may save some landmark hotels is if condo prices stabilize or fall, as many industry observers believe may already be occurring. Then, it might be more profitable to run the building as a hotel rather than spending big sums to reshape the rooms into larger apartments.
Still, with condo prices as high as they are in many cities, if you ever wanted to stay a night or two at the Waldorf or the Ritz, you may want to book soon.
Working against future New York condo conversions is that Manhattan prices may have hit a wall. Click here for that story.
In most of the country prices are still rising, although not as fast. Click here for more.