NY TIMES By ALISON GREGOR December 17, 2009
IN the new home financing landscape created in this recession, certain categories of high-rise development are apparently on the verge of dying out, and one is the “condotel.”
Popular in Las Vegas and Miami, condotels were catching on New York City when the credit crunch hit in 2008. A combination of a hotel and condominiums in one building, the condotel, or condo-hotel, gives condo buyers access to hotel services, but often restricts their occupancy during the year.
During periods when the owner is not in residence, the hotel rents out the condo, providing the owner with income.
Examples of the condotel are the ritzy Plaza Hotel residences at 768 Fifth Avenue and 59th Street, and several Trump buildings, including the new Trump SoHo at 246 Spring Street and Varick Street, which will open to residents in February.
The problem is that banks have been unwilling to finance buyers in condotels.
Rodrigo Niño, the president of Prodigy Network, which is marketing the 391-unit Trump SoHo, said he believes the financing problem struck as early as the end of 2007. The Trump SoHo began sales in September 2007, and now that it is almost time for buyers to close, many are having difficulty obtaining financing.
“There is no financing for condo-hotels, so people have to buy in cash,” Mr. Niño said. “What we think is, out of the original sales, we’re going to lose 10 to 15 percent of the people who won’t be able to close because of lack of financing.”
Mr. Niño said more than 55 percent of the units in the Trump SoHo’s first phase were in contract, but would not say how many units that was.
The developers of the Pieds-à-Terre at the Plaza said they had sold about half of the 152 condos at the condotel. The first recorded sales were in early 2006. Developers indicated that they had worked out financing in some form, but didn’t offer details.
“Our banks recognize that the Plaza’s Pieds-à-Terre are a distinctive product,” said Thomas Elliott, the executive vice president for sales and marketing for the owner, El-Ad Properties, in an e-mail message. “They are prepared to respond to potential purchasers to craft creative deals on the merits and on an individual basis at this extraordinary location.”
Raphael De Niro, a managing director at Prudential Douglas Elliman, was planning a 205-unit Manhattan condotel called the Nobu Hotel and Residences with his father, the actor and real estate developer Robert De Niro. That deal fell through, for reasons other than the financing.
“There are condo-hotels that developers do to get around commercial zoning,” the younger Mr. De Niro said, “and those are like the Trump SoHo, where buyers can only use the unit 90 or 120 days, and then it gets thrown into a rental pool. Those types of condo-hotels are proving to not be successful.”
The De Niros now plan to open a different version of a condotel, in South Beach, in Miami. Here, the buyers can stay as long as they like, but the hotel will not rent out the units when they are not there. Condo owners will have access to hotel services, much as they do at the Residences at the Ritz-Carlton at 10 West Street in Battery Park City.
Like the De Niros, the developers of the 346-unit 75 Wall Street Condominiums in the financial district, which are in the same building as Hyatt’s soon-to-open Andaz Wall Street, decided to forgo the typical condotel model.
“Fannie Mae will not approve a condo-hotel under their guidelines,” said Larry Kruysman, the sales director for 75 Wall Street, which is being marketed by the Corcoran Sunshine Marketing Group. “In today’s market, all the banks want to do loans that are approved by Fannie Mae, so they can sell them on the secondary market in the future.”
Mr. Kruysman said 75 Wall Street, which sells hotel services to condo buyers à la carte, is a Fannie Mae-approved project. Because 75 Wall Street allows its condos to be subleased for a term of three months — unusual for condo developments, which typically require lease terms of a year — the development has attracted foreign buyers.
Foreign buyers are often drawn to condotels. Intending to use the unit infrequently, they don’t mind the restrictions on occupancy, and like the convenience and income.
Mr. Kruysman says they either pay in cash or use bank financing that he found after much searching.
“Lloyds TSB International will do loans in New York,” he said. “I’ve done several of those for foreign nationals. But one thing that isn’t appealing for people is that it’s almost a floating interest rate. By year’s end, the rate may have changed many times, which makes it hard to judge if it makes sense for you as an investment vehicle.”
The Four Seasons at 99 Church Street in the financial district is another condotel that got held up by the credit crunch. But the developer, Silverstein Properties, is seeking construction financing, said Dara McQuillan, a spokesman.
“Look for it in 2012,” he said, and laughed. “We’ll be doing the type of condo-hotel where buyers can get financing.”
Copyright 2009 The New York Times Company