Across North America, luxury-hotel operators are turning to developers for capital
Kim Pemberton
Sun
WESTBANK, FAIRMONT TOGETHER DOWNTOWN
The artist’s rendering of the Fairmont Pacific Rim Vancouver Hotel project (right, middle) is equally harbinger of a changing skyline and signal of a local partnership of developer and hotelier.
Private residences above the 47-storey project in Coal Harbour go on sale in May.
The 175 homes are live/work spaces.
Construction begins next summer with a scheduled completion date of mid-2009, in time for the 2010 Olympics.
The Vancouver developer is the Westbank company, also the developer of the Living Shangri-La hotel-condominium project and the Woodward’s project.
Imagine being cash rich but time deprived. What better place to call home than a luxury five-star hotel with 24-hour concierge, valet parking, housekeeping, room service and a spa to drop by for a massage or steam bath. These are just a few of the perks attracting buyers to a growing trend of effortless hotel/condo living.
And despite the million dollar plus price tags for such a lifestyle it seems there’s no shortage of buyers for these ultra-luxurious residences. Just consider what happened at Whistler last year when the 37 private residences in the Four Seasons went up for sale. The homes, priced between $2.1 to $5.8 million, sold within 45 minutes. On the resale market some are now selling for as much as $7 million.
The 223 least expensive condos at Vancouver’s Shangri-La, priced around the $1.2 million mark, were gone in 30 days and a lineup is now forming for the million dollar plus Vancouver condos in the Fairmont Pacific Rim Vancouver Hotel, which go on sale in May for occupancy in 2009.
“Are these the finest senior homes in the world?” jokes Vancouver realtor Bob Rennie, overseeing the marketing of Shangri-La and the Fairmont Hotel.
“They are not. These buyers are very active people. They are high net worth individuals who want the service and the security of a high-end hotel. The whole concept [in marketing condo/hotel living] is time is our most valuable commodity.”
Why anyone would want to live a pampered life in a hotel setting, if they can afford it, seems obvious but what does the hotel industry gain by partnering with developers of luxury condos.
Industry experts say luxury hotels today are just too costly to build and operate so private residences and/or fractional interest in hotel rooms are necessary.
“It’s safe to say strata hotels are here to stay in Canada,” says Kevin Walker, chair of the Hotel Association of Canada. “Ritz Carlton has been using this model for a long time and hoteliers give them credit for creating the concept in the early 1970s. Now it is the method of choice for new builds and [hotel] conversions.”
Walker and his wife, Shawna, own the 79-year-old Royal Oak Bay Beach Hotel on Victoria’s waterfront, which they plan to convert into a strata hotel with 20 luxury condos pending city approval.
Even in this early stage of development, Walker has received numerous calls from investors and homebuyers wanting to purchase.
“We are revisiting our past in many ways. When I bought the hotel in 1972 there were five upper crust residents living there. They enjoyed having all their meals prepared.”
Walker says while the five-storey hotel’s 120 units will be strata titled they will sell only what is necessary along with the 20 condos to help finance the conversion, maintaining the option to buy back units if they become available.
“Stratifying certain elements of your building helps to balance the financial formula that pays for other services the public likes to enjoy — the pubs, meeting rooms, spa. These are expensive square footage services that don’t necessarily bring a return [to the hotel].”
Betsy MacDonald, managing director of HVS International (Hospitality Valuation Services), agrees operating and high construction costs are driving the trend of luxury hotel/condo developments.
“The one rule of thumb is for every $1,000 spent on building a room you need to get $1 for the room rate. It now costs at least $250,000 to build a room (in a high-end hotel). That means you would need to make $250 to $300 for an average room rate. It doesn’t make economic sense. You won’t find a hotel in downtown Vancouver charging $250 a night,” she says.
To overcome the problem, MacDonald says developers sell condos as part of their luxury hotel project. And finding buyers willing to spend big bucks to own a private residence in an upscale hotel doesn’t seem to be a problem because of the extra services and the prestige factor of being associated with deluxe hotels.
“The hotels provide valet parking, a concierge, dry cleaning and have room service to deliver you a lovely meal. These type of services are nice amenities to have. Never mind it’s a status symbol to say you live at the Ritz or the Four Seasons,” she says.
But while the arrangement works for the full-service hotel, where guests and owners expect to be pampered, there is a limit on where these type of projects best work. MacDonald says the condo/hotel trend isn’t going to be viable in some hotels.
“A Super 8 in Chilliwack that costs $65,000 a room to build doesn’t need condos. You will still see stand alone hotels being built, but for the very top, luxury facilities you will not see hotels on their own being built. They are only viable when they are paired with something else,” she says.
While five-star hotels being combined with condos is a relatively new trend in B.C., smaller, strata-titled resorts have been around since the mid-1990s, says Beth Walters, the Vancouver director of PDF (Pannell Kerr Forster Consulting) a national hotel consultation firm.
“It’s more common in B.C. than elsewhere. It started as a result of lack of financing for hotels so developers found another mechanism,” she says.
These type of resorts, which have a hotel license, are set up sometimes from the beginning with condos that can be put into a rental pool at the owners discretion. Many of them are a three-star amenity, which is less costly to set up because the services required of a five star, such as a 24-hour concierge, is not required.
“Strata and condo developments in resort-like settings tend to spark interest in urban environments or recreational areas like Whistler and the Okanagan.”
Walters says fractional-ownership in smaller recreational resorts is desirable for investors because of the “fairly low entry price,” and they can also enjoy their investment as a second home without the hassle of upkeep.
Concord Pacific, best known for its master planned development in False Creek, is also poised to enter the boutique hotel/condo market, says senior vice-president of development David Negrin, noting it’s the obvious next step with limited land to develop in Vancouver.
“We are in conversations now for a resort in Kelowna and Whistler. By mid-year we hope to have an agreement,” he says, adding the hotels would have about 80 to 120 rooms each.
“You’ll see more [boutique hotels] coming in the next two to three years. With the baby boomers, a lot are cash rich with their parents passing on and them inheriting cash. A lot already have their places, and they’re pretty much paid for so they’re now looking for recreational property. But they don’t want to have a full-time second home. Boutique residences allows them to make money off their unit when they are not there.”
Even the ultra-luxurious hotel owners are seeing their hotel residences as a money earning opportunity.
Seventy-five per cent of the buyers of the Four Season Resort’s private residences in Whistler have opted to put their homes in the rental pool, says general manager Scott Taber.
These homes, ranging in size from 1,500 to 3,700 sq. ft., come with a hefty rental cost. The daily rate in the slow season for the two-bedroom is $2,200 a night to a high of $3,500 during the popular Christmas holidays. The rates for the four-bedroom and den suites range from a low of $3,000 to a high of $6,500.
The suites in the past have rented to celebrities, CEOs and the extremely wealthy or are used by their owners periodically.
“People have less time to go on vacation and when they do go they want to make the best use of that time,” says Taber, adding “some of the owners come here year round, others only on occasional weekends and some we haven’t seen yet.”
The owners of these deluxe digs are primarily from B.C. and the U.S. but a few are international buyers, from places like Hong Kong, Japan and Singapore, says Taber.
Four Seasons is now in the process of getting the word out the majority of these residences are available for rent.
“This is a new product for us as a company. We were quite full over Christmas and the feedback was spectacular. Guests couldn’t stop raving about it. They really do enjoy the privacy of it. It’s for a unique person who wants all the services of a Four Seasons Resort but to be a step away.” The private residences are in a separate building but adjacent to the main resort.
Developers of condos are taking their cue from the hotel industry and are trying to provide similar amenities and architectural features, like outdoor water features and grand entrance lobbies, common to resorts in their own projects, says Mark Belling, president of the Vancouver-based Fifth Avenue Real Estate Marketing Ltd. The company was involved recently with the marketing of Versante in Richmond, a condo project which in many ways will look and feel more like a high-end hotel when it is finished.
“In the U.S. there’s a phenomenon called Private Residents Clubs. Very high end users show up at their residence they use only part of the year and staff have what they like out — the right newspaper, the pics of their family members, the right limo driver who knows the names of your kids. We are learning from that in the private sector and trying to filter that down to daily living,” says Belling.
As an example, Belling says more condos today are offering a 24-hour concierge and architecturally the “great room” of the open concept living/dining area is borrowed from “the resort great room experience.”
“Guess where we took our cue for [condo] amenity features? The hot tub, the steam bath, the fitness centre, the yoga room all came from the hotel industry that has now filtered down to typical consumers who expect those amenities now.”
© The Vancouver Sun 2006