Buyers and developers see new luxury hybrid as suite deal
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.
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.”