Tarsadia Hotels Inc.’s plan to build a condominium hotel is a first for the developer.
The Newport Beach-based company and Orlando, Fla.-based Hard Rock Cafe Inter-national Inc. last year signed a deal to develop and run a hotel in San Diego’s Gaslamp Quarter.
The 420-room facility is set to become the city’s first combination condo and hotel.
The $125 million development is just a couple of blocks from Petco Park, San Diego’s baseball stadium. The hotel and condos are set to open in spring 2007.
The suites are set to sell as condos for $400,000 and up.
“The wealthy don’t see half a million dollars as a lot of money (for a second home),” Tarsadia President Greg Casserly said.
The hotel is expected to cost roughly $300,000 per room to build, Casserly said. The nearby Hilton Gaslamp sold last year for $85,000 per room.
Development Departure
The development is a departure from the hotels Tarsadia and Hard Rock typically build.
Tarsadia researched the idea for several years, according to Casserly.
“We think it will be a strong trend in the industry,” he said.
Growth in the fledgling condo hotel sector is expected through at least 2008, according to a report last month from Portsmouth, N.H.-based Lodging Econometrics Inc.
California has 10 of 105 condo hotels in the works, just behind Florida, where 49 are under way, the report said.
A strong economy and baby boomers entering their prime years for buying second homes are seen bolstering the market for the next 10 years, according to a report from Fannie Mae chief economist David Berson.
A pure condo hotel is one that sells all its units and offers hotel services to residents, according to Jim Butler, partner in Los Angeles law firm Jeffer, Mangels, Butler & Marmaro LLP.
The condo hotel term sometimes is used to describe hotels that convert a few floors to private residences, timeshare rentals and resorts with a separate development of homes.
In OC, the broader definition could apply to the private residences that are attached to St. Regis Monarch Beach Resort & Spa in Dana Point and the Dolphin’s Cove timeshare in Anaheim, among others.
Timeshares typically do not involve ownership of the underlying real estate. Condo hotels do.
The pitch to investors: A condo hotel gives owners the benefits of a luxury hotel without the hassles of keeping a second home.
“We think it supports people’s decision for a lifestyle play,” Tarsadia’s Casserly said.
For some developers, getting financing for a condo hotel development is easier than for a hotel.
“With today’s high construction cost and large amount of equity needed, (developers) may need this concept to get financing,” said Patrick Ford, president of Lodging Econometrics.
Financing wasn’t a factor for the San Diego hotel, which already had full backing before the partners decided to go the condo hotel route, Casserly said.
First in String
The San Diego Hard Rock may be the first in a string of condo hotels developed by Tarsadia and Hard Rock.
New Orleans and Hawaii are other spots the partners are considering.
“We’re open to deals that make sense for both of us,” said Trevor Horwell, Hard Rock’s chief hotel officer.
Condo hotels have been sprouting in other markets,most notably in Florida and Las Vegas.
Recently they’ve begun to appear in Los Angeles, where the Beverly Hilton in December announced plans to add condo units.
OC has timeshares in Anaheim, Newport Coast, Laguna Beach and Capistrano Beach. But no condo hotels have appeared.
That’s not to say they’re not on the horizon.
“Condo hotels work well within a good hotel and resort market,” said Bruce Baltin, senior vice president of Los Angeles-based PKF Consulting, which tracks the hospitality industry.
Tarsadia hasn’t found the right project for a condo hotel in OC, Casserly said.
Luring Business Travelers
“We’re looking, but nothing is a fit at this moment,” he said.
Putting up a condo hotel in a downtown setting such as San Diego rather than coastal OC’s resort backdrop tends to draw more business travelers than vacationers, Hard Rock’s Horwell said.
“That makes it a more lucrative proposition,” he said.
Typically, a condo hotel gives owners a stake in the property along with the use of all the hotel’s amenities. Maintenance at the units usually is up to the hotel.
And cities don’t lose hotel revenue. Condo hotel owners pay property taxes on their units. But when those units are rented as hotel rooms, occupants pay the city’s occupancy tax.
Up to 90% of owners allow their units to be rented when not in use. Hard Rock’s Horwell said he expects that figure to hit 95% in San Diego.
Some cities restrict the amount of time owners can use their units when granting ownership rights, said Butler of Jeffer, Mangels.
That guarantees at least some occupancy tax revenue from the hotel, he said.
Occupancy tax “is a huge source of revenue,” Butler said. “And tourists spend more money (in town) than residents do.”
Tarsadia Hotels owns or runs 17 hotels with roughly 5,000 rooms in OC, Ontario, San Francisco, Napa Valley, Los Angeles, San Diego, Las Vegas and Denver.
Tarsadia’s local hotels include the Anaheim Marriott, Portofino Inn & Suites, Jolly Roger, Residence Inn Anaheim Resort and Hilton Suites Anaheim/Orange.
Tarsadia Hotels was founded by B.U. Patel, a native of India who launched the business in 1976 with the purchase of a 20-room motel in Anaheim.
Hard Rock is part of Britain’s Rank Group PLC. It runs 120 Hard Rock Cafes and 13 Hard Rock Hotels and casinos around the world. The first one opened in 1971 in London.
