Owning a hotel room for pleasure, profit

Two decades after moving to Hawaii from the Northwest, Dan McEvoy considered buying a downtown condominium for his occasional visits to Seattle.

But when he learned he'd have to spend more than a half-million dollars, the Seattle native and small-business owner figured staying with friends and family would do just fine.

Then McEvoy heard about a new type of condominium going up downtown that would allow him to buy a hotel room, stay there when he wants, and possibly make money when others use it.

The "1" is set to rise 23 stories at Second Avenue and Pine Street with 176 condo-hotel rooms carrying price tags of up to $1.4 million, plus 51 regular condos costing as much as $10 million.

Condominiumized hotels were at the forefront of a building boom several years ago in popular vacation destinations such as Orlando and Las Vegas.

Whether the Seattle market will support the high hotel rates and rising condo prices necessary to fulfill buyers' expectations remains to be seen.

Developers nationally are postponing new condo-hotel projects amid an overall decline in real-estate sales and a tightening credit market.

Condo-hotel rooms under construction or in development nationwide are down 24 percent from a year ago, to 19,083, according to Smith Travel Research in Hendersonville, Tenn.

"The primary-home market is kind of sliding throughout the U.S., and the second-home market is definitely hurting," said Smith Travel Vice President Jan Freitag. "Developers know that, so the pipeline is getting smaller."

In Seattle, however, the "1" project was revised last month to add more condo-hotel rooms, after interested buyers exceeded expectations, said Paul Brenneke, president of developer Avalon Holdings. Initially, Avalon planned 110 condo-hotel rooms and 98 regular condos.

Due to open in fall 2009, the project is betting on the continued strength of downtown's real-estate market and Seattle's growth as a vacation destination.

"Seattle is a cosmopolitan city with access to the outdoors, and there's more and more demand for it," said Bruce Pittet, spokesman for Starwood Development, which will manage the condo-hotel portion of "1."

At "1," condo-hotel owners won't be required to let others use their rooms when they're away, but the expectation is that they will.

After subtracting management and marketing fees, as well as travel-agent commissions, Starwood Development will split the room's rental revenue with the owner. Specifics of that arrangement haven't been announced.

Married with two young children, McEvoy, 42, expects to spend about $600,000 when "1" begins sales of condo-hotel rooms in the next few weeks. He also hopes the revenue-sharing agreement with the hotel will cover his monthly mortgage payments.

McEvoy figures it roughly like this: He'll make a down payment of $240,000, and get a 30-year loan with a 6.88 percent interest rate for the rest, with a monthly mortgage payment of $2,366, not including property tax, insurance and homeowner fees. He estimates that to cover the mortgage payment, hotel management would need to fill his room 22 days or more a month at a daily rate above $300, and return at least 40 percent of the revenues to him.

Those numbers aren't out of line with downtown's average hotel-occupancy rate and prices being charged by some of the more expensive hotels.

Starwood Capital is headed by Barry Sternlicht, a hotel-industry veteran who helped launch the trendy boutique-style "W" brand at Starwood Hotels & Resorts Worldwide (which is not affiliated with his new firm). It promises luxurious accommodations and environmental consciousness — a combination that McEvoy thinks will set it apart.

"It's going to be very modern with nice amenities, and all the environmental friendliness is the wave of the future," McEvoy said. "A lot of up-and-coming professionals are very conscious of their impact on the environment."

Typically, when Seattleites think of condo-hotels, they picture luxurious residences atop bustling hotels where the rooms are corporate- rather than individual-owned, and condo residents enjoy a range of perks, from a 24-hour concierge to valet parking.

The Four Seasons has one such project under construction near Pike Place Market; Hyatt plans another at the Olive 8 development near the Washington State Convention and Trade Center.

Unlike many condominium projects, where developers discourage real-estate investors and favor owners who will live in their condominiums, Brenneke said, "condo-hotels openly welcome them."

"They're what the product type is made for. Buyers have the option to live there full time if they want, but most are interested in the rental pool."

Dante Alexander, president and CEO of the National Association of Condo Hotel Owners, a trade group in Scottsdale, Ariz., said he thinks Seattle is ready for a development like "1."

Still, Seattle is "rate-sensitive" compared with more expensive tourist destinations such as New York and San Francisco, he said, meaning revenues for each hotel room tend to be less — a potential problem for buyers hoping to cover their mortgage payments.

"It's not the kind of market where, for whatever reason, people like to pay more than $300 a night," Alexander said.

The average hotel-room rate in downtown Seattle was $173.83 in the first half of 2007, up from $162.76 during the same period last year, according to the Seattle Convention and Visitors Bureau.

Downtown's hotel-occupancy rate also rose, to 73.5 percent from 72.4 percent.

Brenneke said "1" will be in the "very-high-end range," or somewhere between $290 and $400 a night based on prices that some of downtown's most expensive hotels charged last month.

Alexander said he downplays the money-making possibilities of owning a condo-hotel room.

Expectations became unrealistic after the real-estate boom of the early 2000s in Florida, where "you could go to the beach, buy a unit for $300,000, and sell it three years later at a considerable profit, plus make money off renting it out."

"Buy a condo-hotel because you think you'll enjoy it," Alexander said. "If you follow what's going on nationally, we're not sure price appreciation will occur."

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com