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.

An Ode to the '50's Rambler

Built for Baby Boomers -- By Their Parents!

Like narrow ties and bell bottoms, wait long enough and the most dated fashions come back in style.

The same is true in real estate.

As Baby Boomers age, the unheralded, '50's-era rambler is making a comeback.

I can think of (at least) four reasons why.

One. One-level living. Once you hit 50, stairs suddenly matter. Depending on their health, baby boomers in two story houses need to start thinking about downsizing well before retirement. By contrast, people in ramblers . . . can stay put.

In fact, spend $10k or so to move the laundry room to the first floor, and -- Voila! -- everything's on one level. The basement then becomes the province of the grandkids (or guests).

Two. Construction quality. Realtors aren't supposed to play favorites, but I (kind of) do: I'll take a well-built, '50's rambler over virtually anything other era or architectural style.

I've sold any number of these, and while some were dated or even suffered from deferred maintenance, the remarkable thing is how well they weathered any neglect.

I remember selling a rambler by Cedar Lake a couple years ago, and showing up three hours into the inspection to touch base with the inspector (usually, that's about when the inspector is winding up).

It turns out I missed the inspector by two hours: he quickly determined the home was solid as a rock and had left! (It was also true that the Buyers planned to do extensive remodeling, so the inspector's charge was more limited).

Three. Location. Think back to when ramblers were most popular: the '50's. Before suburban sprawl, and before far-flung highways were built.

As a result, many ramblers are located in convenient, close-in neighborhoods. Added bonus: they tend to come with large lots, often times .25 acre or more.

Four. Simple is back.

Unlike McMansions with their two-story foyers and other showy (and arguably, wasted) space, ramblers tend to be sensibly laid out, and the space in them efficiently used.

Want a little more flash?

You can always add crown moldings, granite counter tops and/or hardwood floors (see below).

Rambler Drawbacks

So, what's not to like?

Perhaps ramblers' biggest Achilles Heel is the number of bedrooms on the first floor.

Families who want four bedrooms on one level are going to have a hard time finding it in a rambler. Or, if they do, they're not going to like the room sizes.

In the same vein, master baths hadn't yet become super-sized in the 50's (that took another 30 years), so the odds of finding a bigger one are slim.

Ditto for larger garages.

So what was in vogue in the '50's?

High-quality, mass-produced carpeting! Low pile, high pile, shag -- you name it.

Unlike boring hardwood floors, carpet was colorful, comfortable . . . and suddenly, oh so affordable!

Fifty years-plus later, pulling that same carpeting -- if it's still in the home -- and replacing it with hardwood floors is one of the quickest ways to create value.

Real Estate "Upticks" & "Downticks"

Divining the Direction of Housing Prices,
One Deal (and Tick) at a Time

Both the stock and housing markets have "upticks" and "downticks."

The difference is that, in the stock market, ticks are measured in pennies, whereas in residential real estate, they're measured in thousands -- or even tens of thousands -- of dollars.

For the uninitiated, a "tick" is simply the difference between the current selling price and the last selling price.

So, if the last trade for Microsoft stock was for 1,000 shares at $19.62, and the trade before that was for 500 shares at $19.61, it's selling at an uptick.

In the housing market, the equivalent is a home that sells faster, at a higher price, than its peers ("comp's," or comparable sold properties).

What difference does any of that make?

While you can't tell where the broader housing market is going, at least at the "micro" or neighborhood level, it's possible to tell whether housing prices are headed up or down at the moment by looking at the direction of the "tick's."

In fact, that's how good Realtors recommend their clients price: they know the inventory in a given neighborhood cold, and can tell whether the trend is up or down (news flash: clients don't always heed their Realtors' advice).

If the last few ticks have been up, the next homeowner has leeway to price more aggressively; down, the reverse.

I'd go even further: three consecutive "upticks" signals a rising market.

Notwithstanding the latest, gloomy Case-Shiller numbers (for February, covering the Twin Cities market as a whole), in several local neighborhoods this Spring, there are now a string of sales at consecutively higher prices.