Hotel condos catch on as in-town, investment option
It’s a Friday in February and you’ve driven downtown for dinner, drinks and a night at the Lyric Opera. The only viable way to end that evening used to be piling back in the car for the long ride back to Lake Forest or Barrington or wherever you call home. A hotel might be an option, if you remembered to bring your toothbrush and pajamas, but how often can you do that?
As often as you want – and without lugging clothes and a toothbrush – if you’re an owner at one of several new “hotel condominium” developments. The concept is a popular one in New York but it’s new to Chicago, where three current projects – Trump International Hotel & Tower, the Elysian and the Morton – are now offering the innovative housing option.
All of the Morton’s 178 units in Printers Row will be hotel condos, with an average price around $225,000. At 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 they’re not in residence, owners can rent out these 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, 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, 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. The Elysian has a total of 175 suites and at press time, Pisor said the hotel planned to retain ownership of about 75 of these units. That will help the developer maintain control and a high level of service, according to Pisor, in what he says will be the flagship for a new hotel brand with locations planned for other cities in the U.S. as well as in Europe and Asia.
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 around $815,000 for a studio hotel condominium at Trump Tower and around $625,000 for an Elysian hotel unit.
The price tags may seem hefty for units that while large for hotel rooms, are small for condos (at press time, Trump had just one 2,163-square-foot two-bedroom plan left, priced at more than $2.8 million). But the level of services owners can access when they’re using these condos and the income they generate the rest of the time make financial sense, according to developers and buyers.
Both Trump’s 90-story sleek modern building and the vintage-looking 60-story 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.
The hotel condominium is new to Chicago and buyers initially took some time to appreciate the concept, but both of these projects, as well as the South Loop’s more affordable Morton, report strong sales. In addition to buyers looking for in-town homes, corporations and investors also have been prime purchasers.
Developers cannot provide any sort of detailed pro forma statement to show buyers how the numbers might work on a hotel condo. 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.”