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Does Valley housing market have room for 'condotels' Builders banking on lure of hotel life

When Scottsdale's Hotel Valley Ho announced it would build condominiums on top of the hotel and sell them for about $1 million apiece in December, buyers didn't hesitate to bite.

They slapped down money on all 37 condos and formed a waiting list 300 units long.

But now that Phoenix's hyper housing market is slumbering, half of those buyers have pulled out and the waiting list disintegrated. Experts say the phenomenon is playing out nationally, just several months after "condotels" were touted as all the rage.

"If you're looking for a quick flip, that market is dead," said Steven Roszell, a Colorado-based broker who operates the Web site Condohotels.com.

People have lived in hotels in major cities for decades. But the concept is becoming mainstream, even in suburban cities. Selling units upfront is an easy way for developers to help with their building costs.

Condotels essentially are hotels with residential units on top that buyers can live in or rent to hotel guests for a slice of the nightly rate. About five condotels are slated to open around the Phoenix Valley in the next couple of years, starting with the Valley Ho, where the first two residents recently moved in and construction will finish in December.

Condotels are untested in the Valley, just like the other high-end condominiums cropping up here. Their likelihood for success is a big question mark, said Jay Butler, director of the Arizona Real Estate Center at Arizona State University Polytechnic.

Jesse Thompson, sales director for the Valley Ho, said the market shift was detrimental to sales. But the hotel considers itself lucky that half of the buyers remained. Two people have moved in and 17 more are in the process of closing.

"There was no turning back," he said. "We started building before the economic climate changed in the real estate market here."

Thompson said the hotel is not worried because, worst-case scenario, it can turn unsold condos into guest rooms. General Manager Andrew Chippindall said he is confident the units will appeal to buyers who love the hotel lifestyle.

"There is a huge charisma and aura about living in a hotel, where you have well-trained staff on call to look after you and serve you," he said.

Other developments are moving ahead cautiously.

The W Scottsdale Hotel & Residences planned to open sales on 18 condos this summer, but it will hold off until early next year in hopes the real estate market improves, said Michael Mahoney of Triyar Companies, which is building the hotel.

The W is not a traditional condotel because buyers can't rent their units to hotel guests. Residents will live there full time or use it as a second home, Mahoney said.

Residences on top of name-brand hotels will be more successful than traditional condos, Mahoney predicts. When someone buys a trendy W residence, they are buying a lifestyle, along with maid service, room service and access to the pool, spa and fitness center.

"We're very pleased not to be in the straight condominium market at this time," he said.

Mahoney added that banks are more willing to lend money for "mixed use" hotels than traditional ones because they can recapture their money faster. That could explain why, even in a cool-down, some big brands plan to keep building condotels.

Le Meridien, a French hotelier, announced in August that it will construct a hotel with residences on the banks of Tempe Town Lake. It is aiming for business professionals and professional athletes who want a convenient, maintenance-free place.

The developers of Montelucia Resort, Spa & Residences in Paradise Valley scrapped plans to build condominiums. They say they made the decision because hotels are doing so well that they would rather keep the profits instead of sharing them with buyers.

Instead, they are building residential villas around the property. Debbie and Len Gaby, top executives of Sleep America, bought a villa and will move in when the hotel opens in 2007.

The couple said they are ready to give up their acre ranch for a 4,000-square-foot villa as they prepare for retirement.

"We might have been able to get more size, but we don't need it," Debbie Gaby said. "We can turn the key and travel."

Meanwhile, construction on the Renaissance ClubSport Hotel & Residences has been stalled for months. The developer, Jeff Cline, told his staff last month that he secured new funding and the project would move forward. Cline said he still plans to build the condos.

Roszell of Condohotels.com said condotels are a good buy for people willing to hold onto a property for five to 10 years.

"As the boomers start inheriting this wealth, that's when there is going to be a boom again."

Stephanie Paterik
The Arizona Republic
Oct. 13, 2006 12:00 AM