WASHINGTON — Branded hotel residences have long been a staple of luxury hotel development. But as demand grows for hotel-like homes, companies such as Marriott International and Hilton are expanding a unique segment: hotel-branded residential developments without the hotel.
Traditionally, sales of condo-style branded residences included as part of luxury hotel development have driven the project’s overall funding while appealing to people interested in investing in a vacation home or international real estate.
It’s a model that works across several tiers, said Riyan Itani, director and founder of consultancy Global Branded Residences Ltd.
“Hotel-branded residences are fundamentally driven by the market they’re in,” he said on a panel discussion at the International Society of Hospitality Consultants Annual Conference. “You have stand-alone luxury-branded residences designed for trophy ownership. Then the bulk of the market is luxury residential developments with a hotel that include a rental program. Then at the furthest end are condo-hotels running a rental program, where the owner is limited in the usage of the property so the hotel has a significant product inventory.”
But as hotel brand awareness grows — particularly in the luxury space among wealthy international travelers — that stand-alone model of branded hotel residences is taking off as an option that maximizes the benefits of the luxury hotel brand without the risks of hotel development.
Think Ritz-Carlton Residences without the actual Ritz-Carlton hotel.
That was Marriott’s initial foray into stand-alone branded residences, said Dana Jacobsohn, chief development officer of U.S. luxury brands and global mixed-use at Marriott.
Following some stalls around the Great Recession, the first stand-alone Ritz-Carlton Residences opened in 2009 in Baltimore’s Inner Harbor. The development has 192 units across six stories.
The model wasn’t a goal for the company, but was borne from customer and developer demand, Jacobsohn said.
“Our first goal is to sign hotel deals, and the reason we started growing our residential business in general was to facilitate more hotel deals,” she said. “Over time, our customers were telling us they love this lifestyle and residential developers came to us and asked for the model without a hotel.”
Today, Marriott has 128 branded residential developments operating globally and 17% are stand-alone. Following the company’s 2016 acquisition of Starwood Hotels & Resorts Worldwide and its brands, Marriott added stand-alone developments under the St. Regis, Edition and W brands as well.
“Stand-alone is very important to us and meaningful,” Jacobsohn said. Of Marriott’s 100 branded residential projects in its pipeline, 27% are stand-alone.
The ability for private homeowners to partake in luxury hotel amenities is traditionally the big selling point of branded hotel residences, so what happens when there’s no hotel?
Tim Peck, chairman of OBM International, a global architecture, master planning and design firm that works on hotels with branded residences, said that’s not an issue when the customers for stand-alone branded residences are willing to pay for things such as concierge, on-site maintenance, security and more.
“This is a driving factor behind why luxury brands have the lion’s share of stand-alone residential, because that customer is willing to pay for services and have the amenities, which may include private restaurants, exclusive lounge areas and so on,” he said. “They bear the expenses for operating these things but they’re happy to do it.”
Other global luxury hotel brands such as Mandarin Oriental and Four Seasons are developing stand-alone private residences around the world.
Hilton is about to launch sales for its first stand-alone private residence project, the Waldorf Astoria Residences in Pompano Beach, Florida. The high-rise development will have 92 units and construction is slated to begin in January, according to CoStar data.
The awareness and cachet around a brand such as Waldorf Astoria is a big selling point, said Jonathan Wingo, global head of residential programs for Hilton. Like Marriott, Hilton manages the majority of its residential projects.
“It’s a huge selling tool for our teams to say that Hilton is bringing its hospitality to the management of your private home,” he said.
What’s clear for both Hilton and Marriott is that stand-alone branded residences are for sale, not intended to be circulated into a hotel rental pool like the vast majority of branded residences co-located with a hotel.
“If there is going to be transient use, there must be a hotel to facilitate transient experiences,” Wingo said.
Jacobsohn echoed that, adding that “owners can rent these units for short terms, but the goal is not for stand-alone residences to compete with hotels.”
Consultants and brand executives said the majority of hotel-branded residential development continues to be co-located with a hotel and that won’t change because brand companies want to plant their flags around the world and appeal to their loyal customer bases.
But hotel companies are following the demand.
“Now we realize that there’s big demand for Marriott stand-alone residences; they create more loyalty for our hotel brands and we’re making a lot of money with them,” Jacobsohn said, adding that the company’s top priority is to have hotels in markets and typically won’t move stand-alone residences into a market without having a hotel first.
And the profitability and opportunity are tough to ignore, Itani said.
“They’re the most exclusive, the most luxurious brands, the biggest units and they always perform at a higher sales rate compared to branded residences with a hotel on-site; it’s one of the most interesting trends in the sector,” he said.
The market opportunities are huge because residential buildings globally outnumber hotel buildings, making conversion possibilities much quicker, Itani said.
“There’s just greater opportunity to do stand-alone than co-located,” he said. “My prediction is we will have operators with more stand-alone branded residential than co-located [with a hotel], so they’ll effectively become more residential managers than hotel managers.”