Four years ago, living in a five-star hotel was OK for Manny Ramirez or a Hilton heir. Most Bostonians were not familiar with the concept of residences attached to hotels. But then, in 2005, construction began on the Intercontinental Hotel on Atlantic Avenue.
It was to be a five-star hotel with 424 rooms, but it was also to include 130 condominium units of different sizes, all with access to a variety of hotel amenities, including room service, maid service, a fitness and spa facility and a lap pool.
The hotel got its certificate of occupancy in 2006 and, less than two years later, all but 18 of the units have been sold. In a slumping housing market where condominium prices in February fell by their largest percent in 15 years, those who sell the units at the Intercontinental are happy with their outcome, and more and more mixed-use projects that have residences attached to five-star hotels are coming to Boston.
“We’re above pro forma [with the Intercontinental], so we’re very pleased with the success we’ve had there,” said Kevin Ahearn of Otis & Ahearn, which represents the residences at the Intercontinental.
And more of those types of residences are on their way to Boston. In the Back Bay, the Mandarin Oriental hotel, which will include 50 condominium units (all already sold) and some rental apartments, is under construction. Fan Pier, on Boston’s waterfront, is slated to include 100 full-service residential units attached to a hotel, according to the Boston Redevelopment Authority.
The residences at the Intercontinental are filled with some of the demographics one would expect: Empty nesters; divorced, middle-aged singles; and some international owners, Ahearn said. But some condos have been purchased by investors, and some have been bought by young, affluent families with children – a relatively new phenomenon in full-service buildings.
The housing slump that has gripped so much of the country has, for the most part, spared the luxury condominium market. Year-to-date data comparing 2000 and 2008 shows that sales over $1 million have stayed steady, Ahearn said.
“It’s holding very, very well at the high end,” he said.
Indeed, in a study done last year by The Warren Group, parent company of Banker & Tradesman, 81 condos priced at $2 million or more were sold from January to October. That was 37 percent more than were sold in the same period in 2006. The first 10 months of 2007 also had more sales than the same time period in 2005 – when Massachusetts’ housing market hit its peak.
In other parts of the country, hotels with residential components are not doing as well. There are several incarnations of the condo hotel. Probably the most common – especially in vacation destinations – is a room or apartment that is part of a condo, but owned by a private party as a second or a vacation home. When the owners are not using the room, the hotel rents it out and the owners can profit from the proceeds. In the past, this situation has helped garner financing for the hotels.
“Though long-term demographics bode well for continued growth, the softening of the U.S. real estate market is affecting buyers who purchased hybrid second-home products based on investment motivations, as opposed to lifestyle decisions,” according to Ernst & Young’s report, “Hospitality Top 10; Thoughts for 2008.”
High Demand
According to Joel Greene of the Condo Hotel Center in Florida, fewer and fewer of those condo hotels are coming onto the market than there were years ago. Many are looking at alternatives: Straight hotels or primary residential condominiums with all the services of hotels, like those that have worked so well in Boston.
The market for second homes in hotels has stayed strong overseas, however. Greene said he has probably sold more condo hotels in Dubai in the past two years than he has in the United States. Condo hotels, however, have popped up across the country over the past couple of years in places like Rhode Island, instead of only in the traditional vacation markets like Las Vegas and Miami.
“Places you wouldn’t necessarily think,” Greene noted.
Internationally, these second homes have been popping up in places like the Dominican Republic, Costa Rica, Panama and Mexico.
Domestically, the higher-end properties have kept the condo hotel market afloat.
“The higher end is not as affected. People who have more money and a ton of money, are going to keep buying,” Greene said.
In Boston, affluence and a healthy economy are keeping the primary residences attached to hotels in high demand.
“Nationally, the numbers are very different,” Ahearn said. “I think the Boston market is faring much better than other parts of the country that are having problems.”
Local fundamentals are playing a part. There is a three-month supply of homes, as opposed to a much higher inventory in places like Miami-Dade County. Nationally, there is a 10-month supply, Ahearn said.
“That’s one very distinct difference,” he said.
The local economy in Boston is very diverse, which insualtes it from hits to individual industry sectors.
“Our [economy] is very solid, always has been,” Ahearn said.
