Condo-Hotels: Instant Anachronisms?

Victims of Soft Economy,
Tight Financing

Imitation is the sincerest form of flattery.

What makes a trend, especially in real estate?

Imitators.

How do you know something's a bust?

Lack of imitators.

In the Twin Cities, two years after it was completed, the Westin Galleria in Edina stands out as the area's sole (to my knowledge) Condo Hotel ("Hotel Condo??").

Economic Sea Change & "The Lag Factor"

The reason there's no "Westin Galleria II" is because such projects have a multi-year gestation period, and since it was conceived, both the economy and real estate financing have undergone sea changes.

Like many real estate trends, the hotel-condo phenomenon -- and the economic headwinds they're now facing -- are most conspicuously on display in New York City:

Nearly a dozen [condo] projects in and around New York City that offer [hotel-like] perks . . . have recently opened or are nearing completion. For developers from Hoboken to Harlem, Williamsburg to SoHo, a condominium with a hotel attached is one more weapon in the reignited amenities arms race.

For buyers, the concept of a home with all the comforts of a hotel may seem like paradise. But hotel services don’t come cheap: the developers of condo-hotels plan to charge as much as 20 percent more per square foot than high-end competitors that don’t have hotel partners. And along with room service can come hotel-like bills, not to mention higher monthly maintenance fees. Financing can also be more difficult to secure; banks are leery of lending money for what could appear to be strictly investment property.

Dolly Lenz, the vice chairman of Prudential Douglas Elliman, said that at the same time they fantasize about dialing up club sandwiches at midnight, prospective buyers should take into account the possibility that the price of the amenities could go up over time. “It might be included for a year or two years,” she said. “Three years from now the kicker hits them.”

Jonathan J. Miller, the president of the appraisal firm Miller Samuel, said, “The key factor to remember is that these properties were conceived in a different market.

--Marc Santora, "Looks Like a Condo, Acts Like a Hotel"; The New York Times (9/18/2010)

To heighten their appeal in more frugal times, several of the properties discussed above are moving towards ala carte pricing for their (long) list of hotel-like amenities.

Revisiting Westin Galleria

So, is the Westin Galleria a financial bust?

I don't know the building that well, so I'm not going to render a verdict; the only thing that jumps out -- quickly looking it up on MLS -- is that 16 of the 82 units total (about 20%) are currently for sale.

And you'd certainly expect such a high-end building to be facing the same challenges common to all upper bracket properties in today's market.

If there's a silver lining for the Westin Galleria (and properties like it in other markets), it's this: real estate is ultimately all about two things: location, and supply and demand.

The Westin-Galleria's location is excellent, and -- at least for the foreseeable future -- the supply of hotel-condo units is constrained.

My New Favorite Neighborhood

Real Estate Guessing Game

OK, which Twin Cities neighborhood am I describing?

--It's in Edina, east of Highway 100;
--With its blend of rolling hills, wetlands, and manor-like homes on big lots (rules out Country Club), it feels like Minnetonka;
--It's an easy, five minute walk to both the Convention Grill and 50th & France.

Give up?

Edina's White Oaks neighborhood.

With all of 60 homes and its tucked-away location and numerous cul-de-sac's, it can be easy to miss.

However, once you've found it -- it's a revelation.

P.S.: the home pictured above, 4703 Townes Road, is one of the most impressive homes I've seen in White Oaks -- or anywhere else in the Twin Cities.

The listing agent is Edina Realty's Sue Wahman; it will be on the market after Labor Day. Asking price is $2.849 million.

Big Weekend for Country Club Open Houses

Country Club Extravaganza

Country Club is one of the premiere neighborhoods in Edina -- indeed, in the entire Twin Cities.

Mostly built in the '20's and '30's, Country Club homes are historically registered, and include some of the most impressive Tudors and Colonials around.

There are currently 44 Country Club homes on the market ranging in price from around $600k (smaller homes needing lots of work) to more than $4 million; more than half will be open this Sunday (that's quite unusual for upper bracket homes).

One example: 4620 Drexel Avenue South (pictured above).

Built in 1928, this Tudor has been completely renovated, and has five Bedrooms and Baths, and 5,600 FSF. List price is $1.75M.

If you are looking for a great home in a fabulous neighborhood, but didn't think you could afford Country Club, come take a look.

You might just be surprised!

Realtor Visual Aids

Real Estate Marketing 101

Realtors use "sign tents" in a variety of situations (it's a called a "tent" because it's in the shape of a triangle, and looks tent-like).

The standard sign, of course, is "Please Remove Shoes."

But custom signs are a great way to call attention to hidden home features.

So, I've had them made up to alert prospective Buyers to a Kitchen warming drawer that would have otherwise gone unnoticed; draw attention to an especially large entry closet that was covered with paneling (and therefore camoflauged); and helpfully label a "Butler Bell" that people at my open houses had been puzzling over.

But another great use for a sign tent is the one I saw today at 4904 Sunnyslope*, in a lower level utility room that would have otherwise fallen through the cracks.

The sign tent read:

Enjoy this Room as:

--Storage
--Arts & Crafts
--Dark Room
--File Room
--Office

Nice touch!

*Listing agents are Amy Deckas and Marybeth Goulett of Edina Realty.

Edina Home featured in NY Times

"What You Get For $1.1M"

It's always a kick when The New York Times' weekly real estate feature, "What You Get For $_____ ", showcases a local home.

That's especially true when it's as gorgeous as this one (the Dining Room is pictured above).

The home, located at 5429 Woodcrest Drive, is about a mile north of Southdale, and backs up to Minnehaha Creek.

Here's a link to the MLS listing, if you want more info:

http://matrix.northstarmls.com/de.asp?k=411903X1JL0&p=DE-52354363-246

P.S.: Obviously, the exposure is a coup for the listing broker and agent (Lakes Sotheby's and Anne Schaeffer, respectively). I have no idea what went into the choice. It's certainly not because the home is new to the market. In fact, it's been on for almost eighteen months, and dropped from $1.449M to $1.095M during that interval.

For Sale Near Interlachen in Edina

Buy the Lot, Get the Home for Free

Beautiful property with west views of Highland Lake! Premier lot close to Interlachen golf course! Home is not available for showing.

--per MLS

"Home for sale, home not available for showing."

Huh??

It turns out that what's really for sale here is the land: according to Hennepin County, 70% of the $588k tax assessed value, or $413k, resides in the land. That compares with the usual 25% - 33%.

Is it worth it?

As I've blogged previously, to determine if the asking price is in the ballpark, multiply by 3.5, then subtract 20%.

In this case, 3.5 x $850k (list price) = $2.975M. Subtracting 20% from that is $2.38M.

If there is a precedent for $2.4M homes on the block . . . the asking price is right. (Twenty percent is typically how much new construction can overshoot prevailing, nearby prices.)

P.S.: sure looks like an aerial shot to me (discussed a couple posts back).

"Top-Heavy" Inventory

Jumbo Prices, Jumbo Selection

I'm not a big wine drinker, but I've always believed that wine prices were characterized by a "law of diminishing returns."

In other words, while an average $8 bottle might be twice as good as an average $4 bottle, a $16 bottle probably isn't twice as good as $8 -- and $32 almost certainly isn't twice as good as $16 (I'm sure there are many wine aficionado's who would beg to differ).

Today's housing market seems to be characterized by the opposite phenomenon.

That is, the higher up you go, the better value you find. (see also, "$1 Million Buys a Lot of Home - Again").

$500k as Dividing Line

So, to go back to my wine example, at the moment a $750k house seems to offers more than twice the value as $375k, and $1.5M offers more than twice the value as $750k.

Just to confirm my own, very unscientific "gut sense" about today's housing supply, I ran a search segmenting housing supply by $100k intervals up to $500k, with everything over that lumped together.

I chose $500k because that's effectively the break point between homes that can be purchased with conventional financing (under $417k), putting 20% down, vs. jumbo loans, which are more expensive and difficult to obtain.

For my search area, I chose a broad swath of Minneapolis and close-in west suburbs; the boundaries were roughly Highway 55 on the north, Minneapolis' city lakes on the east, 494 on the south, and between 494 and 169 on the west. That pulled up 866 single-family listings, including homes in Minneapolis and parts of Golden Valley, St. Louis Park, Hopkins, Minnetonka, and Edina.

Here's the distribution I found:

Single family homes under $100k: 4

$100-$200k: 71

$200k-$300k: 212

$300k-$400k: 144

$400k-$500k: 92

over $500k: 343

What are the implications of this?

If you're a Buyer, and you can afford to move up in price, you'll avail yourself of a much greater selection -- and presumably, softer prices.

If you're a Seller with a more expensive home . . . you have lots of competition.

To stand out, you'll need to out-stage, out-market -- and yes, out-price -- your peers.

What's Selling: East Edina

Demographics + New Construction + East Edina = Sold!

In a market where new construction is supposedly dead, and high net worth Buyers are thought to be licking their wounds, some developers are still finding strong demand for their product.

Case in point: 5420 Park Place in Edina.

Built "spec" (speculative, as in no upfront buyer) by a local boutique builder, Great Neighborhood Homes, this 4,000 FSF craftsman just sold --before it hit the market. List price: $1.5M.

What did it have going for it?

Multiple, overlapping selling points (see diagram):

--A location in coveted East Edina, on a large lot close to Minnehaha Creek
--New construction with quality finishes, classic design, and minimal maintenance
--A size (4 BR/4BA; 4,000 FSF) and floor plan that appeals to a wide range of Buyers, including families with small children as well as empty nesters interested in a condo alternative.

Build it right, in the right spot . . . and they'll (still) come.

Westin Galleria's "Edina Effect"

Edina's '08 Price Rise: Less Than Meets the Eye?

Edina was the only community with more than 200 home sales last year that posted an increase in home sale prices. In 2008, the median sale price of Edina homes sold through the Regional Multiple Listing Service was $388,250, up 3 percent from 2007. Throughout the metro area, the median sale price fell 13.3 percent.

--"Edina: Suburban Star"; Star Tribune (1/23/09)

Edina is a wonderful community, full of well-built homes, great neighborhoods, and outstanding schools. Home prices there have doubtless held up better than other parts of the Twin Cities in what is the worst housing bear market in decades.

However, it's stellar 2008 performance is skewed -- upwards -- by the presence of a single, high-end development: the Westin Galleria.

According to the Multiple Listing Service, 26 units in the Westin Galleria sold in 2008 for an average sales price of $1.063 million; the least expensive was $400,000 -- still above the median Edina home's sale price.

Without the Westin's upward pull, it appears that the median Edina sales price last year actually fell about 2%-3%. That's still exceptionally strong -- just not quite as strong as appears at first blush.

(Not So) Exceptional Properties*

Upper Bracket Woes

Although Edina has been a housing standout in the current downturn, it, too, has pockets of excess inventory, and homes that have suffered serial price cuts -- and still aren't selling.

Just one street in Edina's Country Club section, Sunnyslope, now has six homes on the market, at prices ranging from $729,000 to $5 million. The market time ranges from just over 3 months to almost three years(!) (lots of green lawns in the MLS shots -- never a good sign in the Twin Cities in January).

What's going on?

Sunnyslope Sellers

Unfortunately, not just one thing. The economy, of course. The fact that anyone buying one of these homes likely needs a jumbo loan, which now carries a huge premium to so-called conventional or conforming loans (under $417k). The fact that people with the means to buy upper bracket homes have likely had their assets whacked, and now, their jobs threatened.

Finally, you'd speculate that the "Sunnyslope inventory glut" is emboldening Buyers to make, shall we say, "aggressive" offers that Sellers have been rejecting.

What you can categorically rule out is some sort of long-term decline, or a neighborhood-specific issue: Country Club is -- and is likely to remain -- a premier Twin Cities address.

So what happens next?

You'd guess some combination of more price reductions, Sellers who take their homes off the market, and/or Buyers who raise their offers enough to entice one or more of the Sunnyslope Sellers.

Although Edina so far has been spared the pox of short sales and foreclosures affecting other parts of town, that, too, could change with a deepening recession.

*Edina Realty has a special marketing group for upper bracket home called "Exceptional Properties," which includes two of the six Sunnyslope homes.