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Hotel
condomania by Barry Pearce
How times have changed.
The rapid expansion of a local market for hotel condominiums is a sign,
experts say, confirming Chicago’s status as a world-class city. At
press time, New Homes Magazine counted at least eight hotel condominiums,
totaling well over 1,500 units, on the market. They range from The
Falor Companies’ South Loop projects, where units have been priced
as low as the $250s, to Trump International
Hotel & Tower, where suites range from the $810s to $3.2 million.
As projects like Trump pass the 70 percent sold mark, new hotel condos
continue to open. The Amalfi Hotel Chicago, The
Mandarin Oriental, and Hotel 71 are the latest to enter the fray.
The Amalfi, 20 W. Kinzie, which had just announced a conversion by Magellan
Development Group at press time, is a boutique operation with units
priced from the $200s. Most of the hotel
condos currently on the market seem to be selling well. What’s the appeal
and how does this form of housing, usually weighted toward the top end
of the marketplace, really work? Some projects, such
as The Amalfi, are purely condominium hotels. At several other projects,
including Waterview Tower,
The Elysian and Trump, portions
of the buildings will be devoted to high-end traditional condominiums,
which function like conventional units in any other building. But these
developments also include five-star hotels where buyers can purchase hotel
condos. When hotel condo owners are not in residence, they can rent out
their units through the hotel program and generate income. The units are deeded
and owned in fee simple – real condominiums that can be bought and
sold at any time. The owners have private storage where they can keep
belongings when they’re away, and when they’re in residence,
they have full use of their units – as well as the perks of an upscale
hotel, on a fee-for-service basis. There are monthly assessments and real
estate taxes, as in any condo building, and hotel condo owners also share
in the costs of operating the hotel. “It’s a
lifestyle decision,” says David Pisor, managing partner with Elysian
Development Group. “I live in the suburbs and I want an in-town.
Now I can get a place with an 18,000-square-foot spa and all of the amenities.
And when I’m not there, I can rent it out.” The general idea is
the same, though the details and packages vary at each development. At
Trump Tower, 401 N. Wabash Ave., buyers can use their hotel condominiums
as much or as little as they please. Putting units into the hotel rental
program is voluntary, and owners can choose to keep them out entirely.
All of Trump’s 227 hotel condos are being sold to individual buyers,
so Trump will manage the hotel but not retain ownership of individual
units, according to sales director Tere Proctor, of Koenig
& Strey GMAC Real Estate. “It’s a
good system because you’re not in competition with the developer,”
Proctor says. As units in the rental program are used by hotel guests,
they receive rotation points in a computerized system. Each time new guests
arrive, the computer automatically assigns them to the owner’s unit
with the lowest points, in a system Proctor says is fair and efficient. The Elysian, 11 E.
Walton St., offers buyers three different programs of 14, 35 or 90 nights
when they can stay in their units. The suites are placed in the rental
program when owners are absent and generate income. Neither Trump nor
the Elysian requires advance notice from hotel condo owners before their
stay, and if their particular units are taken, they are moved to other
rooms, with arrangements for hotel staff to transport their belongings.
At press time, prices started in the $810s for a studio hotel condominium
at Trump Tower and in the $620s for an Elysian hotel unit. Many of these projects,
including the Amalfi Hotel, Trump, Waterview Tower and The Elysian, offer
the best of hotel services including a 24-hour doorman, concierge, indoor
swimming pools, spa services, gourmet restaurants, room service and valet
parking. Although the concept
seems to be catching on in Chicago, even fans aren’t always sure
how the numbers will play out. Developers cannot provide any sort of detailed
pro forma statement to show buyers financial scenarios for hotel condos.
They want to be clear that they’re selling real estate, not a security,
which would have special reporting requirements. They suggest that buyers
do their own research and point to rates at nearby hotels like the Peninsula,
which charges more than $400 a night. Michael Zaransky,
of Prime Property
Investors, says his group purchased 20 hotel condominiums at Trump
Tower because they were impressed by the investment potential and by how
well hotel condos have fared in New York. “We’re very confident that this is an excellent investment vehicle,” says Zaransky, who looked at Trump’s other hotel condos before buying. “We want to own them and hold onto them for the income strain.” By his estimate, that revenue “will cover the debt, the assessments and also produce cash flow on a quarterly basis.” |
A
few years ago, almost no one in Chicago had heard of hotel condominiums.
The concept, which mixes a traditional condo with a luxury hotel, was
well known in Florida and New York, but even with its booming downtown,
Chicago did not have the same level of appeal for upscale part-time residents.