Like Eloise, the fictional little girl who resides at The Plaza in New York, or Howard Hughes, who spent his senior years at the Las Vegas Hilton, people want to live in hotels. Now they can. What was once a celebrity extravagance has become a new national norm in luxury housing.
Driven, of course, by baby boomers.
“People, especially the aging population, want not just a house but a lifestyle,” said Joy Berry, senior vice president of real estate for Ritz-Carlton. “They want to have room service, maid service, concierge services a phone call away. They want exercise facilities, pools — all those support services that are part of a resort lifestyle.”
Ritz-Carlton plans to build its first Arizona resort in Paradise Valley in 2009. It has almost as many homes as hotel rooms on the site plan.
In fact, several East Valley hotel-and-home projects are planned or under construction.
From the W Scottsdale, with 18 one-, two- or threebedroom condos pegged to fill up the top two floors, to Montelucia, a Paradise Valley resort makeover with 34 privately owned villas expected to sell for as much as $3 million apiece, hotel living is expected to explode in the Valley.
Hotels with residential units on top of, next to, or even instead of the guest rooms — sometimes dubbed condo hotels — are the next big thing. Even if nobody can agree about exactly what they are.
“It’s the hot trend in the industry now. There’s not a luxury resort being built without mixed use,” said Jan Freitag, director of Smith Travel Research. Smith Travel is a Tennessee-based research firm that compiles and analyzes statistics for the U.S. lodging industry.
“In the ’80s it was all about extended stay; in the ’90s it was boutique hotels. Now in the 2000s suddenly condo hotels are the next new thing.”
But Freitag said it’s difficult to define the trend.
Fact: Hotel developers are building housing units — condos, townhomes, even single family detached homes — as part of hotel projects and selling them to individuals.
Still, some define condo hotels as dependent on what the individual purchaser does with the property. Live in it full-time? Live in it part-time and let the hotel rent the room to overnight guests the rest of the time? Or hold it for an investment and let the hotel rent out all the rooms all the time?
The recently formed Scottsdale-based National Condo Hotel Association defines the always rentable rooms as the only real condo hotel concept. Dante Alexander, founder of the new trade organization, said 98,000 condo hotel rooms or suites are under development nationwide — about 20 percent of all the new hotel rooms being built.
But the legal definitions of the privately owned hotel units get muddier, and sometimes even interval ownership — 12 or 13 owners per unit, in an arrangement similar to time shares — get included, said Jim Butler, chairman of the Global Hospitality Group of Jeffer, Mangels, Butler & Marmaro. The Los Angelesbased law firm specializes in “creating solutions for hotel owners, developers and lenders,” Butler said.
But however it’s defined, the experts say that like previous hotel industry fads, some homes-within-hotel developments will flourish, permanently changing the business model.
“Long-term, the wellconceived, well-designed projects work,” Butler said.
And as for the Scottsdale area, where every new upscale hotel development — the W, Ritz-Carlton — or redevelopment — Valley Ho, Montelucia, Mountain Shadows — has condo units included, Butler said it is an obvious choice.
Freitag is not as confident.
“It’s a fad that’s not going to go away completely, but all those being built won’t get sold,” he said. “The verdict is still out for the concept in Scottsdale, a good second home market. It will be interesting to see who is left standing after the next (economic) downturn.”
The condo hotel is a decades-old concept, Butler said. In fact, Camelback Inn in Paradise Valley is one of the first-ever condo hotels — long before the term was even coined.
Every one of the 453 luxury casitas scattered in clusters throughout the 125-acre property are privately owned, while hotel giant Marriott owns the lodge, restaurants, gift shop, convention center and spa, said Clark Albright, director of sales and marketing.
The casita owners belong to a condominium association, which owns the roads, pools, gardens and common areas. But the owners don’t live in the casitas except for 28 days a year. The rest of the time, Marriott rents the rooms. Income from room rates covers taxes, insurance, management fees and contribution to the common association fund. The rest is profit for the owner.
Camelback Inn’s unusual ownership began in 1972 when Marriott, which had purchased the resort from original owner Jack Stewart five years earlier, wanted to fund a major expansion. It was in the days before real estate investment trusts and limited partnerships became the primary hotel owners. Big money for improvements was hard to come by. So the hotel company sold off the rooms to raise cash.
Now decades later, and partly for the same reason, the concept has caught fire. First in Florida a few years ago and now spreading to other popular vacation and residential destinations, Butler said.
“They satisfy the consumers’ desire to own real estate and have services, amenities and conveniences of a resort,” Butler said. For developers, they provide a “financeable product.” Since 1998, hotel financing dried up, and construction costs soared. To add to the hotel developers’ woes, room rates plummeted after 9/11 and have only recently started inching back up to 2000 levels.
“It was just difficult to pencil out a (hotel) project,” he said. “The condo hotel provided the answer to all these concerns.”