A developer plans to turn one of Washington's best-known hotels -- the Watergate in the posh West End -- into residential units. The trend is increasingly popular, say developers and real estate brokers, as interest rates remain relatively low and the housing market stays hot.
"In any major city -- D.C., Chicago, New York -- this is a growing trend," said Marc A. Magazine, managing director of hotel brokers Insignia/ESG Hotel Partners. "Residential property is worth more than hotel property now."
Monment Realty plans that by 2006, the Watergate will be a 133-unit luxury cooperative called Belle Rives, with top units selling for as much as $3 million.
(Katherine Frey -- The Washington Post)
Donald Trump in 2002 paid $115 million for the 193-room, all-suites Hotel Delmonico on Park Avenue in New York and converted it into luxury condominiums, said Mark Gordon of Sonnenblick-Goldman Co., a real estate investment banking firm in New York and an adviser to the seller in that deal. Gordon's company is doing several similar deals in Philadelphia, Toronto and San Diego.
In the District, the buyer of the Watergate Hotel -- Washington's Monument Realty LLC -- said that by early 2006 it will turn the 251- room hotel into 133 luxury cooperative apartment units that will sell for $700,000 for a one-bedroom unit on a lower floor and up to $3 million for a three-bedroom penthouse. The hotel was built in the 1960s.
Chevy Chase developer JBG Cos. plans to pay nearly $300 million for the 1,300-room Marriott Wardman Park Hotel in Woodley Park on Connecticut Avenue NW, which is the District's largest hotel, and may turn some of the rooms into condos, according to real estate brokers and people close to the deal who wish to remain anonymous because the deal is still being negotiated with Thayer Lodging Group Inc., an Annapolis investment firm. The deal is to close by the end of the year. Benjamin R. Jacobs, a partner and one of the founders of JBG, would not comment.
Thayer bought the property in 1998, paying $227 million. It spent $100 million renovating the hotel, which was built in the 1920s.
In many markets, including Washington and New York, there are plenty of hotel rooms now -- and more to come, hotel consultants and developers said. That means hotels cannot often charge the kind of rates they did before the Sept. 11, 2001, terrorist attacks led to a slump in their business. For developers these days, turning a hotel property into condos is often a better return.
"What customers are willing to pay for a hotel room is not enough for the developer of a project to receive a fair return," said Mark Woodworth, an executive vice president at PKF Consulting, a hotel advisory company in Atlanta.
The last time Washington went through a conversion of properties was in the early 1980s, but then it was apartments being converted to hotels downtown as the hotel industry boomed. Now some of those hotels are aging and half-full.
"Some have become obsolete," said Bill Moyer, director of hotel brokerage at District-based developer Donohoe Cos. "They may have small rooms and need extensive renovations, so it makes more sense to take that money and convert them into condos where you can sell them off and then get your money out almost immediately rather than over the long period of time which a hotel takes."