The new model
Hotels add private residences to cushion construction costs

by Donna C. Gregory
for Virginia Business
September 2007

Living in a classy hotel has been an option for years in New York City. And now the trend is making its way to Virginia. In Richmond and the resort city of Virginia Beach, homeowners will soon be able to merge the convenience of condominium living with the amenities of a hotel.

Imagine ringing up room service after a tough day at the office and having a hot meal delivered to your door. Or simply going downstairs for a workout at the fitness center.

Several hotel projects under construction are adding units that can be sold as private residences, mirroring similar projects in larger real estate markets such as Miami, Seattle and Chicago. “It’s definitely a new thing here,” says Lou Haddad, president and CEO of Armada Hoffler, developer of the Westin Virginia Beach Town Center Hotel & Residences. When the 236-room luxury hotel opens this November in the city’s Town Center, it will offer the only four-star accommodations in Hampton Roads and 119 luxury condominiums.

At 38 stories, the project will be the state’s tallest building. Anchored by five floors of parking, the 10-story hotel plans many services for both guests and residents including a fitness center, pool, concierge and housekeeping.
Condo owners will live on the floors above the hotel. Units range from one-bedroom to more than three bedrooms and are priced at $400,000 to $4 million. So far, sales have been brisk with 96 units under contract. Sales representatives say there really isn’t a “typical buyer,” although other sources say these projects tend to attract young professionals, empty-nesters and retirees.

Residents will have easy access to 40,000 square feet of retail on the hotel’s first floor. Plus they will be within walking distance of restaurants, stores and a performing arts center within the $500 million, 17-block, mixed-use Town Center. “These buildings offer a tremendous opportunity to get four-star services along with your condominium,” notes Haddad. “It also gives the hotel some built-in clientele to sell services to, and it helps the hotel in terms of taking some of the costs and attributing it to the residential.”

The trend of adding residential units to hospitality projects is being driven by economics. “The sales of condo units are used toward the construction costs for the hotel,” says Tim Stiffler, president of Tidewater Hotels and Resorts in Virginia Beach. “In areas where you have very high-value land and as construction costs keep escalating — to make a hotel work — you need to find other sources of revenue to drive down the construction costs.”

Tidewater Hotels opened a new hotel that includes residential units. The 168-room SpringHill Suites will be home to the first luxury condos to be built along the Virginia Beach oceanfront in years. The 24 condos are priced at $1 million to $1.3 million. Stiffler says 18 of 24 units have sold. Overall, the residential portion will account for about 73,000 square feet of the 270,000-square-foot project.

Tidewater Hotels took a different approach, opting for less convergence than what homeowners will experience at the Westin to protect the privacy of condo owners. “There’s very little going on between the hotel and the condominium operations,” says Stiffler. “The way the buildings are set up, they could almost be considered separate and distinct. The only crossover is that the condo owners will have pool access at the beach club that we’re building with the hotel.”

In downtown Richmond, New York-based Goodstein Development Corp. expects to break ground on the $141 million Centennial Tower in summer 2008, changing the capital city’s skyline with a 20-story skyscraper. The project’s centerpiece will be a 122-room boutique hotel on Main Street with 50 corporate suites, 218 luxury condos, office space and upscale retail.

“What we are doing with Centennial Tower is we are creating the ultimate vertical, gated community,” says Leonard Bayer, Goodstein’s senior vice president. “[As a condominium owner,] you can go downstairs to work on the fifth floor, you can go to the ground floor and eat at the restaurant, you can go down on the eight floor and visit relatives who are staying in the hotel — all without leaving the building.”

Condo prices will range from $250,000 for a 500-square-foot unit to $1.7 million for a 3,000-square-foot home on the upper floors. He views condos in hotels as part of the evolution of homeownership from single-family homes to town-house condos and now hotel residences. “This is just the next step of homeownership.”