Bankrupt St. Augustine Hotel in
Latest Setback for a Once-Hot Sector
|By Douglas Hanks, The Miami
HeraldMcClatchy-Tribune Regional News
May 27, 2007 - Aug Funding lent the owners of the St. Augustine condo-hotel $5 million in late 2005 and hoped to be paid off with interest by now.
But its attempt to auction off the 24-room South Beach hotel failed, despite more than 100 inquiries.
"Nobody showed up," said Phillip Hudson III, head of the Florida bankruptcy practice at Arnstein & Lehr and the St. Augustine developers' lawyer. On Friday, the fund bought the hotel in bankruptcy proceedings.
The dud of a fire sale offers another measure of a once-hot corner of South Florida's real estate market. When condominium sales were soaring, dozens of hotels offered their rooms for sale to individuals, who could then rent out their units for a share of the profits. But as the condominium market went cold -- sales were down 35 percent in April across South Florida -- the condo-hotel sector slowed down, too.
Certainly, some condo-hotel developers are still moving ahead.
As of February, more than half of all hotel rooms under development in the United States were being sold as condo-hotel units, according to Smith Travel Research.
Two condo-hotels by W, a well-regarded boutique brand by Starwood Hotels & Resorts, are under construction in Fort Lauderdale and South Beach.
And Miami's Related Group is selling almost 300 condo-hotel units at two Viceroy hotel properties -- one in South Beach and one on Miami's Brickell Avenue.
"If it's a real high-end project, there's still a market for that," said Victor Lopez, a top development executive for Kor Hotel Group, Related's partner in the Viceroy ventures. He said wealthy buyers see the rental income as a bonus, but mostly value having a worry-free vacation home with hotel amenities.
Even so, two South Beach hotels converted by the once-prolific developer Robert Falor, the Breakwater and the Edison, are in bankruptcy. A third, the Royal Palm, has halted sales. The St. Regis is set to replace the Sheraton Bal Harbour, which once was slated to have 230 condo-hotel units; now it will have only three dozen.
In Islamorada, the Ocanos condo-hotel resort was scrapped just eight weeks after sales started in the face of weak demand; developers said they will build the resort and rent the rooms themselves instead.
END OF A TREND
The May 7 report from Smith Travel noted that 15 percent of all hotel projects nationwide have a condominium component, down from 25 percent just two years ago.
With condo-hotels less popular, some South Florida developers are selling their resort properties as "fractionals" -- the marketing term for high-end time shares.
Typically sold off weeks at a time -- as opposed to the seven-day slots most time share properties sell -- fractionals give buyers only limited opportunities to rent out their units. That's a big difference from the condo-hotel model, where owners usually expect cash flow by renting out rooms to the public.
"If you're selling a condo-hotel, there's a certain investment aspect to it, which certainly complicates the sale," said Scott Oldakowski, sales director for Ritz-Carlton's new condominium and fractional resort in Miami Beach.
But with the lodging industry enjoying flush times -- room rates are up about 11 percent this year in South Florida -- condo-hotel developers think their hybrid product still has appeal.
The St. Augustine had reservations or contracts for about a third of its units before friction between the lender and developers prompted some buyers to walk away, Hudson said.
"I think there are still people interested in pursuing it," said Bryan Wasmer Dempsey, head of bankruptcy sales for Kerdyk Real Estate, the Coral Gables firm that tried to find a buyer for the hotel at 347 Washington Ave.
And while condo converters once paid more than $500,000 a room for hotels, the St. Augustine's $5 million asking price amounted to half that -- and included a vacant lot next door.
Still, without condo sales, many would-be buyers said they couldn't make their money back simply by renting rooms at the St. Augustine. "Some investors told me they thought it was a little extravagant for a boutique hotel," Wasmer Dempsey said.
Copyright (c) 2007, The Miami Herald
Distributed by McClatchy-Tribune Information Services. For reprints, email firstname.lastname@example.org, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. NYSE:HOT,