PROPERTY I Developers focus on new concept as a route for baby boomers to own slice of vacation real estate
Derek Penner
Sun
Developers focus on new concept as a route for baby boomers to own slice of vacation real estate. Photograph by : Vancouver Sun, Handout photo
When Scott and Sheryl Ullrich plot a summer getaway, they don’t book a suite in the posh Summerland Waterfront Resort, they book their suite: the two-bedroom apartment they own as a condominium that is also part of the luxury hotel that opened last winter.
Think of the suite as a summer cabin, but with maid service, a gym and swish lakeside bistro.
“I think we’re at a point in our lives where there are not enough hours in the day for everything,” Scott Ullrich, president of property management firm Gateway West Management, said in an interview.
And, rather than packing up a fifth-wheel trailer for a week-long getaway as they used to, the Ullrichs have decided that “vacations are for relaxing, so let’s get to the relaxation part.”
Condominium hotels aren’t new, several have operated in Whistler for years — such as the Westin Whistler Resort & Spa where the Ullrichs also own a suite — and in other resort locations around North America.
What is newer, however, is the evolution of condo-hotels from a financing option for developers, who are building new hotels as a way for well-heeled baby boomers to own vacation real estate without the hassle of having to look after it.
Developers are increasingly, and aggressively, marketing the concept, as seen with the Westin Kelowna Resort, a $160-million condo hotel project Vancouver developer Stanley Yasin is preparing to sell.
And, when the Ullrichs aren’t using their Summerland retreat, or the Whistler Westin Resort chalet, managers rent out the rooms as part of the hotel generating cash that — in the case of their Whistler property — pays the mortgage and condo fees, so they wind up with free vacations.
Ullrich, 48, has a schedule that only allows him to sneak a week here or weekend there with wife Sheryl, 34, and their daughters Victoria, 12; Sabrina, 10; and 21/2-year-old Samantha.
“The idea of a condo hotel like Summerland, or the Westin [in Whistler] is that you’re in a four-star pampered situation that doesn’t cost me four-star amounts.”
Ullrich’s Summerland purchase also proved to be good for business. He won a contract to manage a second phase of the property, which will consist of condominiums that are not part of the hotel.
George Wong, of Platinum Project Marketing Macdonald Realty — marketer for Yasin’s Westin Kelowna project — said condo hotel ownership is a growing trend among wealthier boomers who, in some cases, are looking for multiple recreation properties in different locations.
“[The] baby-boomer demographic is looking for really high-end getaway experiences,” Wong said. “That’s why we’re seeing a lot of hotel condo offerings coming up in beautiful places like Maui, . . . South Beach, San Francisco and San Diego.”
And the Westin Kelowna, which Yasin wants to turn into that city’s first five-star accommodation, has sparked much curiosity.
Wong has registered almost 3,000 people interested in pre-viewing the project, although Platinum won’t start writing sales contracts on its 227 suites, ranging in price from about $350,000 to $2.5 million, until September 9.
Yasin, who has developed four condo hotels, including the Summerland Resort, said the concept has been around in Whistler for a long time. The concept, however, has only really taken off within the last 10 years.
Yasin added that condo hotels attract a mix of recreational owners and strict investors. However, of the buyers only interested in the investment potential he said, “by the time they’ve bought it, they find themselves using it, too.”
The big advantage of condo hotels, from the standpoint of the hotel, is that the business doesn’t carry the debt.
“To build a hotel [like the Westin Kelowna], it would have in excess of $100 million in debt,” Yasin said.
“One of the nice things about [building it as] a condo hotel, where you have 227 owners, is you really open a business that’s debt free, and as a result, has a good opportunity to be a successful business.”
Steve Kleinschmidt, director of hospitality and leisure advisory services for the Vancouver office of business consultants PricewaterhouseCoopers, said the brand-name hoteliers, such as the Westin (which is owned by Starwood Hotels and Resorts), Hilton or Fairmont, typically do not build or own hotels these days.
They lend their names later, either under management contracts or by licensing their names on a franchise basis, to property developers who complete the buildings and own the real estate.
However, Kleinschmidt added that developers often find it difficult to find conventional financing for conventional hotels, which is where the condo concept comes in.
“Banks, certainly over the last 10 to 15 years, have seen the hotel sector as representing a relatively high risk because of fluctuations in the market,” Kleinschmidt said.
Individual buyers of strata units, however, are judged on their ability to personally carry the debt for whatever mortgage financing they need.
Kleinschmidt said the first condo hotels in B.C. outside Whistler were the Westin Grand in Vancouver along with the Marriott and Hilton airport hotels.
He added that, where resort developments differ, is in giving buyers more liberal rights to use their property. (The Westin Kelowna is contemplating 45 days of use during the summer and 60 days during the rest of the year).
As an investment, however, Kleinschmidt said the return on condo hotels tends to float with economic cycles and the strength of tourism.
Wong said the developer isn’t making any projections for potential returns to unit buyers in the Westin Kelowna. What the marketers are doing is including information about the performance of Kelowna real estate and the city’s hotel occupancy and room rental rates to help people make their evaluations.
Ullrich said that “for the first year or two you do have to feed [the unit],” paying in more than the income the suite generates.
After a couple of full annual business cycles, however, Ullrich said suites can generate cash flow, or at least break even, depending on the size of the buyers’ mortgage.
Ullrich added that he paid $505,000 for his Westin Whistler Resort unit as an original purchaser in 2000. Last year, he said, another owner sold an identical unit on a different floor for $675,000.
“So I know I’m sitting on something that’s worth more than what I paid for it,” Ullrich said.
Ullrich paid $237,700 for his family’s suite at the Summerland Resort and that has proved to be a “pleasant surprise” in terms of the revenue it generates.
Bryan Bruce, vice-president of western North America for Playground, an Intrawest-owned developer of vacation real estate, said successful condo hotels are in resort spots where there is high international recognition and a strong history of solid room occupancy among the top luxury brands.
Bruce noted that condo hotels also cater to a very different market. For instance, in May, Playground sold out 300 suites in the Hard Rock Hotel San Diego for $150 million US at the same time the city’s local real estate market had begun to stagnate.
“Ultimately, folks really need to be comfortable with their acquisition decision [in a condo hotel] as a lifestyle decision,” Bruce said.
“The rental program, it’s viewed as an offset. People don’t look at it as an income generator; it’s a smart way to own vacation real estate.”
© The Vancouver Sun 2006