Time To Check Out: Why Hotels Are Branding Condo Developments Using This Flag-Sans-Hotel Model
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Luxury hotel-branded residential developments have always catered to the highest echelon of the 1 percent, but developers are now willing to do away with the hotel portion to provide an even greater level of exclusivity — and it doesn’t come cheap.
Instead of adding a handful of residential units to a hotel development, or vice versa, major hospitality brands are now partnering with developers to oversee services within purely residential projects.
“Buyers today want that hotel level of service, but they don’t want the actual hotel,” London-based design and development firm Finchatton co-founder Alex Michelin said. Finchatton specializes in luxury developments around the world. “They don’t want to have a $15M condo and be on the treadmill in the gym next to the guy who got the discount room rate.”
Hotel-branded residences aren't a new concept. The first of its kind is believed to have been apartments at New York’s Sherry-Netherland Hotel in the 1920s. The modern era’s version of hotel-branded luxury condos that command a hefty premium took off in Boston in the 1980s when the Four Seasons began offering residential units for sale. They continue to grow in popularity thanks to their unmatched level of service and amenities. The niche multifamily segment’s next chapter includes the hotel flag — just not the hotel guests.
Michelin is part of a team developing Twenty Grosvenor Square in London’s Mayfair neighborhood. The building was once the U.S. Naval headquarters in Europe and used by Gen. Dwight D. Eisenhower during World War II; it will soon open as the world’s first stand-alone Four Seasons Residence. The flag-sans-hotel model is also being pursued at the Four Seasons Private Residences in Los Angeles, and the first two residence-only St. Regis developments are underway in Rye, New York, and Boston.
“From a developer perspective, everyone wants to sell the best product. When you partner with an industry leader, buyers know what they’re getting,” Cronin Group principal Jon Cronin said. The company is developing the St. Regis Residences at 150 Seaport Blvd. in Boston. “We see our sales volume as being dramatically shorter than what we would have had with a non-branded product.”
Designing For The Guest Who Never Checks Out
It is not exactly difficult to sell a luxury condo in Boston’s Seaport neighborhood, where prices are averaging more than $2K per square foot. Cronin still thinks luxury buyers prefer knowing more about what they are getting into; that hotel brand association has meant reconfiguring his project from its initial plans.
When penciling out the project as an unaffiliated property, Cronin said he allotted about 3,500 SF of amenity space on the building’s third floor. After St. Regis got involved, his development team eliminated six condo units to build out more than 12K SF of amenity space.
Within the Seaport property, residents will have access to an infinity pool, a spa and fitness center, a golf room, a library, private dining and other amenities that he said were expanded once the St. Regis flag was attached to his development. There will also be two open units residents can reserve for guests visiting from out of town.
The hotel company also had recommendations for adding butler pantries in units by a service door to enable back-of-house staff to deliver things like meals and laundry without disturbing the residents.
“There is a premium price tag to the product,” Cronin said. “But from an investment perspective, it’s a great investment because the premium is there and always will be there.”
Buying a St. Regis-branded condo comes with many of the perks associated with being an elite hotel guest. Homeowners become members of the company’s VIP membership group, giving them access to upgrades, discounts and exclusive offers at St. Regis properties around the world, Cronin said.
Time Is Money
Across the street from the future site of the St. Regis Residences in Boston, Cottonwood Management is at work on EchelonSeaport, a $950M, 1.3M SF project that will have 717 condos, apartments and micro-units spread over three towers. Taiwan-based Regent Hotel Group will brand the condo portion of the development, expected to open in phases beginning in 2019.
“People have less time these days because they are working so hard,” said Vickie Alani, a principal at Boston-based architecture firm CBT, which designed the residential portion of EchelonSeaport. “The way to buy back time is through service, and the hotel brands understand how to provide that or provide the perception of that to residents.”
Having the hotel brand without the actual hotel is beneficial for the InterContinental Hotels Group-owned flag because it enables Regent, which operates locations mainly in Asia and Europe, to gain brand recognition in North America. The venture is beneficial to residents because they get more say in the level of service and development, according to Cottonwood Management Project Executive and Head of East Coast Development Rebecca Mattson.
“Often the hotel can commandeer some of the decisions on development,” Mattson said. “It’s about finding how to bring that level of service that draws buyers to hotels without the downside of having a hotel on-site.”
The first St. Regis Residences broke ground in May and is currently under construction in Rye, New York. The development team overseeing the project said the model works best in markets with a dense population of highly affluent people, and they have found a particularly sweet spot with locals who are looking to downsize, but aren’t ready to retire to vacation homes in Florida.
“Sure, they could move anywhere, but they’ve been living their lives here,” Alfred Weissman Real Estate Project Executive Tim Perini said. “They may have a second or third home elsewhere, but keeping roots where their kids and grandkids are is important.”
Hotel-Branded Residences: The Numbers
Hotels offering a residential-only product is a natural evolution for the luxury segment of the industry, Cornell University’s Johnson College of Business Center for Hospitality Research Director Christopher Anderson said. While hotels with residential components historically reserved 25% of the property for condos, he has seen that number grow in recent years.
The number of hotel operators putting their flags on residential developments grew 27% from 2015 until the end of 2017, according to a hotel-branded residential study by marketing firm Graham Associates.
“I think because the premiums have been so strong, the share of the square footage has gradually increased, and we’re getting less rooms allocated to traditional hotel beds and more to luxury residences,” Anderson said.
In London, buyers are flocking to the Four Seasons at 20 Grosvenor Square on sheer name recognition.
“By having them involved, we were probably able to sell more with a little more ease because when people hear Four Seasons are doing the servicing, there is a bit more confidence,” Michelin said. “There are a few buyers in the building who literally came in just because they love the Four Seasons.”
Luxury goods command hefty premiums, and branded real estate is no different. While the hotel-branded residential development lacking a hotel component is a concept in its infancy, a Savills report says premiums on hotel-branded residences typically range between 20% and 40%. Units at 20 Grosvenor Square will be some of the priciest in Mayfair, with some residences commanding as much as $67.7M.
“Without question, confidence translates to a higher sale pace,” Michelin said. “The way buyers buy, they discount anything they are uncertain about. The minute you hear it’s a luxury brand name, you’re willing to pay more.”
CORRECTION: AUG. 15, 9:30 A.M. ET: A previous version of this story included an outdated price and size figure for EchelonSeaport. This story has been updated.