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San Diego
Saturday, May 18, 2024

Downtown’s Hard Rock Plans to Open Doors Softly

The “soft opening” of the Hard Rock Hotel San Diego, scheduled for this week, marks the completion of the city’s first 100 percent condotel.

But with only one more full-fledged condotel expected to come on line next year, another planned, and a couple of others built as expansions of larger hotels, it appears that the condotel trend, once predicted to be the next new wave of lodging development within San Diego County, has turned out to be more of an ankle slapper instead.

Statewide, the total of 100 percent condotels is about 12.

Nonetheless, as construction crews worked diligently to put the final touches on the Hard Rock, that downtown project seemed to be doing very well.

Condotels make hotel owners, or hotel-room owners, out of average investors. Contracts vary, but owners typically have a set period of time that they may use them, usually from 90 to 120 days annually, and the rest of the time they become part of property’s room inventory.

Rollicking And Rolling

Located on Fifth Avenue in the rollicking east end of the Gaslamp Quarter, the uber-chic Hard Rock with 420 rooms and suites reportedly has had no trouble getting sales contracts signed.

One source had said he’d heard that there was a high rate of fallout in contracts for the Hard Rock’s units, but the development company denied the report.

Pat Patel of Orange County-based Tarsadia Hotels, the Hard Rock’s developer and manager, said that even though sales contracts would not be finalized on the units until late October , under state law condotel sales hinge on a certificate of completion , he does not anticipate a large number of buyers falling out of contracts.

“Actually, just the opposite,” Patel said. “We had an excellent response, which is a testament to the brand, and for the most part buyers are sticking with the program.”

While there may be a few who drop out, there’s a long waiting list of prospective buyers to replace them, he added.

Tarsadia President Greg Casserly could not be reached to comment on this story, and the company typically shies away from giving out numbers, but he told the San Diego Business Journal in late 2005, as construction was getting started, that the price tag would be in excess of $130 million.

The Hard Rock’s rooms and suites, which range in size from 360 to 1,400 square feet, went under contract for sale at a low of $350,000 to a high of $2.2 million. General Manager Robert Todak declined to be specific on room rates. But he said the property “would be among the price leaders” in the Gaslamp Quarter.

“I think you’ll find our rooms $50, at a rack rate, over the Gaslamp (average),” he added.

While conventions typically are able to negotiate rooms at $200 nightly, the average runs from about $250 to $300 nightly downtown.

Not As Attractive As First Thought

The condotel trend, which pushed west to Las Vegas from Florida several years ago, was expected to be particularly attractive to smaller California developers whose pockets aren’t as deep as real estate investment trusts and large national corporations.

The county, which enjoyed relatively high hotel occupancy rates despite the economic downturn after Sept. 11, 2001, was ripe for condotels, industry analysts said, because traditional lenders had all but redlined lodging projects.

But as the Business Journal reported a year ago, analysts and experts forecasted that a slowdown in sales of residential condos could have a downward effect on demand for condotels, since the type of investors drawn to condos are the same ones who would likely buy condotels. A more recent factor negatively impacting the market for condotel development, analysts now say, is the decline in the subprime lending market.

Strong Demand In Coronado

In addition to the Hard Rock’s success, sales have apparently gone swimmingly at the Beach Village, a condotel development of 35 luxurious beachfront cottages, which is an expansion of the iconic Hotel del Coronado.

Gary Driver, vice president of Hotel Del Realty Co., which is overseeing sales of the Beach Village’s units, said that all are under contract, and that his company is in the process of closing escrows.

“The demand was always strong here,” he said. “The interest was always high. We didn’t do any advertising at all, just some public relations.

The cottages and villas range in size from 1,230 to 2,000 square feet and sold with price tags in the range of $2.4 million to $5 million each, Driver said.

To reserve a night in a “junior suite” on Oct. 12, according to the Hotel del Coronado’s Web site, one would have to shell out $1,140. A one-bedroom suite with a full kitchen, living room and dining room on the same night was going for $1,940, and a two-room suite, also with kitchen, living room and dining room, was priced at $3,080.

But sales of condotel units aren’t moving as fast at the 185-unit Diegan Hotel, where rooms and suites are being built to range from 400 to 2,700 square feet. The Diegan, located on Fifth Avenue between Broadway and C Street, was recently renamed the Setai to reflect its Florida-based management company. The broker for the project could not be reached.

According to one published account, Steve Rebeil, a partner in 5th Avenue Partners of Orange County, the Diegan’s developer, said that he planned to return buyers’ deposits and the property would open as a regular hotel.

The partnership declined to comment. However, Nick D’Annunzio, with the Miami-based public relations firm Tara Ink., which represents 5th Avenue Partners, said sales of its condotel units are continuing.

A 2008 opening, possibly as early as February or March, was planned, D’Annunzio added.

A posh 130-unit condotel has been proposed by La Quinta-based KSL Encinitas Resort Co., on a 4-acre tract west of North Coast Highway 101 and La Costa Avenue. Construction has not started, and Encinitas city planning officials are uncertain as to when it will.

Meanwhile, Solana Beach’s City Council this summer imposed a moratorium on condotels.

The Trend That Never Was

According to the Centre City Development Corp., the city of San Diego’s planning and redevelopment agency that oversees redevelopment projects, no new condotels are proposed for downtown. So at least for now, consultants and others are predicting an end to the trend, or the trend that never was.

“I think when people felt good about the residential real estate market, they’d invest in second homes, such as condotels,” said Alan Reay, who heads the Irvine-based Atlas Hospitality Group, one of the state’s largest hotel brokerage firms. “Today, people are a lot more cautious.”

He also said he doubted that San Diego would see any other condotel projects, “at least not for a very long time.”

The key, from an investor’s standpoint, is whether a condotel project would work as a regular hotel, said Reint Reinders, who retired as president and chief executive officer of the San Diego Convention & Visitors Bureau and is now a hospitality consultant.

Michael Gallegos, president of San Diego-based American Property Management Corp., which operates and owns 45 hotels across the country and in Mexico, agreed with Reay that now is not the ideal time for new condotel development when “secondary debt markets are crashing.”


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