Sep. 16, 2004 - South Beach's notoriously exclusive Shore Club may sell off its hotel rooms to the general public, joining a financial trend reshaping South Florida's vaunted lodging industry.

Ian Schrager says he is still running the numbers but that he is leaning toward joining his partners in making the oceanfront celebrity haunt a hotel-condo property, where individuals would own all 325 rooms there.

"I'm bullish on the idea," said Schrager, whose nearby Delano hotel helped launch South Beach's turnaround in the 1990s from grim retirement village to sexy playground.

But the Studio 54 founder who led South Beach trend-making for more than a decade said he still must determine whether this latest one has passed him by.

The last several years have seen some of the industry's strongest brands, including Four Seasons and Ritz-Carlton, launch condo-hotel complexes in South Florida. Low interest rates and the allure of owning a piece of a hotel have fueled rapid sales at more than two dozen hotel-condo projects announced from Palm Beach to Islamorada.

"There's more demand than there is supply," said Scott Berman, a PricewaterhouseCoopers analyst in Miami. "It's more than a trend."

But with a growing roster of condo-hotel projects underway or announced, there are worries of a coming glut. Indeed, Schrager said he has hesitated signing off on converting the Shore Club in part because he's uncertain where the condo-hotel market will be two years from now -- particularly with interest rates rising.

"There are some timing issues involved," Schrager said in a telephone interview from his New York office.

Hotels have turned to the condominium concept as a way to raise millions of dollars in capital by selling off rooms in the real estate market. Individual buyers typically loan their units back to the hotel in exchange for a share of the rental revenue.

Despite its growing popularity with developers, the condo-hotel is such a novel concept in South Florida that analysts say it is too early to decide their performance as real estate investments. Berman cited a handful of complexes open long enough to offer a track record, and other analysts say they've seen uneven performance when it comes to condo-hotel units' rental revenue and property values.

"The jury's out," said Michael Cannon, managing director of Integra Realty Resources.

Converting rooms to condominiums lets hotel owners cash out of a property, while usually retaining lucrative contracts to manage the front desk, restaurant and other services. Meanwhile, they pass on most of the risks of ownership in a notoriously up-and-down industry to the new room owners.

"For the most part, you're out of it," said Joel Greene, a sales agent at the Condo Hotel Center brokerage in North Miami.

Schrager recently faced a well-publicized cash crunch, but he said the notion of a Shore Club conversion does not signal trouble there.

Owner Philip Pilevsky opened the Shore Club weeks before the Sept. 11, 2001, terrorist attacks, which caused an extended downturn for the industry. The following year, Pilevsky brought in Schrager to run the hotel.

Schrager's posh Clift Hotel in San Francisco filed for bankruptcy protection in August 2003 at a time when Schrager was scrambling to refinance $355 million worth of debt on four other hotels, including the Delano. Last month his hotel company, Morgans Hotel Group, announced a $475 million recapitalization package from new lenders.

The Clift remains in bankruptcy, but Schrager said the Shore Club has exceeded his expectations. He described a condo conversion as an "opportunistic" maneuver to tap into a seller's market and raise more than $200 million in cash.

Still, he said he was not considering converting the Delano, which he owns outright, because "that thing is so successful."

Though the Shore Club boasts one of the most opulent pool decks in South Beach, the rooms need work before people would buy them, Schrager said. He expects to spend $20 million in renovations during the conversion, including adding kitchens to each room.

He sees a Shore Club life as a big selling point, bucking what industry experts said is the tendency of most condo-hotel owners to rent their units rather than visit them.

"I embrace the idea of blurring the distinction between a residence and a hotel," he said. "It's almost like getting a second home on the beach and part of the whole lifestyle thing the Shore Club has to offer."

Schrager declined to discuss prices, though the New York Post quoted him in June saying units would cost from a few hundred thousand dollars to several million dollars. He said the Post mention has brought a crush of inquiries from would-be buyers, including a selection of the bold-faced names the Shore Club craves.

"It's the same kind of people that you read about in the gossip columns," he said. "Those are the very same people who want to buy."

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