Victims of Soft Economy,
Imitation is the sincerest form of flattery.
What makes a trend, especially in real estate?
How do you know something’s a bust?
Lack of imitators.
In the Twin Cities, two years after it was completed, the Westin Galleria in Edina stands out as the area’s sole (to my knowledge) Condo Hotel (“Hotel Condo??”).
Economic Sea Change & “The Lag Factor”
The reason there’s no “Westin Galleria II” is because such projects have a multi-year gestation period, and since it was conceived, both the economy and real estate financing have undergone sea changes.
Like many real estate trends, the hotel-condo phenomenon — and the economic headwinds they’re now facing — are most conspicuously on display in New York City:
Nearly a dozen [condo] projects in and around New York City that offer [hotel-like] perks . . . have recently opened or are nearing completion. For developers from Hoboken to Harlem, Williamsburg to SoHo, a condominium with a hotel attached is one more weapon in the reignited amenities arms race.
For buyers, the concept of a home with all the comforts of a hotel may seem like paradise. But hotel services don’t come cheap: the developers of condo-hotels plan to charge as much as 20 percent more per square foot than high-end competitors that don’t have hotel partners. And along with room service can come hotel-like bills, not to mention higher monthly maintenance fees. Financing can also be more difficult to secure; banks are leery of lending money for what could appear to be strictly investment property.
Dolly Lenz, the vice chairman of Prudential Douglas Elliman, said that at the same time they fantasize about dialing up club sandwiches at midnight, prospective buyers should take into account the possibility that the price of the amenities could go up over time. “It might be included for a year or two years,” she said. “Three years from now the kicker hits them.”
Jonathan J. Miller, the president of the appraisal firm Miller Samuel, said, “The key factor to remember is that these properties were conceived in a different market.
–Marc Santora, “Looks Like a Condo, Acts Like a Hotel“; The New York Times (9/18/2010)
To heighten their appeal in more frugal times, several of the properties discussed above are moving towards ala carte pricing for their (long) list of hotel-like amenities.
Revisiting Westin Galleria
So, is the Westin Galleria a financial bust?
I don’t know the building that well, so I’m not going to render a verdict; the only thing that jumps out — quickly looking it up on MLS — is that 16 of the 82 units total (about 20%) are currently for sale.
And you’d certainly expect such a high-end building to be facing the same challenges common to all upper bracket properties in today’s market.
If there’s a silver lining for the Westin Galleria (and properties like it in other markets), it’s this: real estate is ultimately all about two things: location, and supply and demand.
The Westin-Galleria’s location is excellent, and — at least for the foreseeable future — the supply of hotel-condo units is constrained.