As the recession tightens its grip on the economy, perhaps the hardest hit segments in the lodging industry have been the luxury and upper-upscale sectors. With both consumers and businesses scaling back on spending, paying high room rates is beyond their current budgets. That reversal of fortune is apparent in occupancy, ADR and RevPAR figures. Using statistics from Smith Travel Research, Friedman, Billings, Ramsey & Co. Inc. reports that for the week ending March 14, luxury and upper-upscale hotels saw RevPAR declines of 32.7% and 26.3%, respectively.

Meanwhile, PKF Hospitality Research, taking a longer view, predicts that the luxury segment will see an occupancy decline of 10% to 61.1% in 2009, with ADR going from $288.71 to $264.38, a drop of 8.4%. RevPAR will take a 17.6% dive, decreasing from $195.98 in ’08 to $161.52 this year.

For upper-upscale, the numbers aren’t much better. Occupancy is forecast to dip 11.6% to 60.7%, while ADR is expected to take a 9.2% plunge to $145.18 from $159.88 in 2008. RevPAR will edge down to $88.12 from $109.79 in 2008, a decline of nearly 20%.So how is a luxury hotel operator and/or developer to survive? recently spoke with Anthony O’Brien, Montreal-based senior vice president at Playground Limited Partnership, a division of Intrawest, which operates 11 ski and beach resorts in Canada and the US. He oversees the sales and marketing teams for the condo hotels and condos at all of those North American resorts. Clearly, the marketplace is quite different today, necessitating new strategies, he says. But location still matters.

And in today’s credit starved environment, a developer is almost obligated to help prospective buyers get the needed financing to buy a condo hotel unit. “The rules of the game have changed significantly, and for us it’s about having relationships with a number of financing partners to ensure we have products for each customer that comes through the door.

With that as a backdrop, O’Brien talked about how developers of upscale resorts can market and sell their properties in these tough times. Can you give us an overview of your company does?

O’Brien: Playground is a division of Intrawest, which is a ski- and beach-resort operator and real estate developer at each of those locations. Essentially, Playground is the selling arm of the real estate at Intrawest resorts. We also do real estate sales and marketing for partner developers at other resorts. The majority of the properties in the Intrawest portfolio are mountain ski resorts and the majority of the real estate at those resorts are condo hotels, townhomes or land projects. We do not have any urban development, but we do have a few standalone condo developments in different locations. One is in Hawaii on Maui and the other is in Napa, CA.

Historically, our expertise was in the pre-selling of real estate for Intrawest and our methodology was based on doing presales of up 70% to 100% before construction would start on a project. That was essentially the model we were borne out of. Obviously, market conditions have changed over the past few years and what we have become within Intrawest resorts is essentially a brokerage, mandated to drive the sales of developer inventory as well as the free-market resales in each of the locations that we work. Currently in North America, we have approximately 30 active projects. The majority have been built and delivered. We still have a few that are under construction or are being delivered at Tremblant in Quebec, Blue Mountain in Ontario, and Whistler in British Columbia, Canada; Cooper Mountain and Winter Park in Colorado, two projects in Mammoth and one in Napa, CA; one in Maui; a resort in Sandestin, FL; Snowshoe and Stratton in Vermont and Mountain Creek in New Jersey.

Not all are condo hotels. Typically, at each one of those locations, other than Napa and Hawaii, we’ve built pedestrian villages. That’s sort of a trademark product from Intrawest. Within those pedestrian villages you typically have a number of condo and condo-hotel properties that we’ve built and sold over the years. In the remaining inventory we have both branded and non-branded condo hotels at approximately half those locations. For example, we have Westin-branded condo hotels at Blue Mountain, Napa Mammoth, CA. How does your condo-hotel model work? Someone buys the hotel room, and when they are not using it, the unit goes into the rental pool?

O’Brien: Yes, and it depends on the regulations of the state or province in which the project is in as well. Typically, an individual purchases the deed for a single home, whether it be a studio, one-, two- or three-bedroom unit. The person purchasing it is limited to a certain amount of usage a year, usually somewhere between 29 and 59 days. The rest of the time it goes into the rental program. The operator of the hotel rents out their home and provides them with a split of the rental revenue that is generated from their home. What do the units cost?

O’Brien: The range would be anywhere from $400 a square foot to $1,000 or more, depending on location and product. Those numbers are based on the original list price, and in today’s market we have different discounts at a number of locations to continue to sell the inventory and to ensure our pricing is realistic within each marketplace. How much has been sold?

O’Brien: Out of all the Intrawest built product over the years, we’ve sold somewhere around 90% to 97% of what we’ve built. So what’s remaining is just what is left over from the last two to three years of development. How can you sell these luxury properties in this environment?

O’Brien: There are a number of things. There’s the real estate sales side and then there is a hotel operations side. For the profitability of each, a lot of the characteristics are the same. The obvious one for real estate or a hotel ties to the location. The best properties are ones that are either beachfront, ski front or golf frontage, and that impacts the real estate pricing as well as the attractiveness of the property for a lodging operator.

The next is the amenity package within the hotel, as well as within the area that the hotel sits. The majority of our locations are sitting in a resort with an array of amenities for people to use. These are the things that attract people both to the real estate purchase for the lifestyle, but also for the lodging guests that want to come in for a weekend or a week for a vacation with their family.

When it comes to the actual real estate component, there are probably three other characteristics that are key. The first one is just being realistic about today’s marketplace and ensuring that if you want to sell now, you need to be priced to that marketplace. One of our biggest mandates at Playground is the analysis of our position in each marketplace we are in. We look at all of the data from competitors, within our own product as well as the trend lines to ensure that we price our inventory at a level that allows the developer to be at the forefront of sales in each location. Over the past 12 months, we are, in fact, selling more of our developer product in each location in each competitive set across the board than all of our competitors.

The second piece on the real estate side is the carrying cost, which includes the maintenance and housekeeping fees. Some condo hotels have very high fees and others have more realistic ones. What you will find is the ones with a more realistic fee structure are more palatable for the buyer.

And then the final piece from the real estate side is ensuring that you’ve got financing. In today’s world there has been a significant effect on credit, primarily in the US. It’s imperative that if you are selling the real estate, you have solutions for your customers for financing. The rules of the game have changed significantly and for us it’s about having relationships with a number of financing partners to ensure we have products for each customer that comes through the door. So you are helping buyers obtain financing today?

O’Brien: Absolutely, yes. Our Canadian resorts aren’t affected the same way as the US ones. For our US resorts, much more than ever, we probably maintain relationships with at least five to 10 lenders in each environment and we are in touch with them every week because their parameters have changed so significantly and so often over the past few months that we need to stay on top of what’s available, who is it available to, etc. Rather than just give a buyer a phone number as we have in the past, we introduce the relationship and ensure that a solution is provided for buyers so they can obtain financing when making a purchase. Are you marketing differently now? Reaching out to different segments?

O’Brien: I wouldn’t say it’s about different segments, per se. I would say it’s about a different message. Historically, in resort real estate, you would market it based on the dream of the lifestyle. It would be much more magical than logical. Today, it’s the same buyer who wants to live the lifestyle at a resort, because nothing has changed at these resorts. You essentially have great amenities and great experiences at our resorts. So the attractiveness of the real estate is still the same for the buyer. But the reality is, the buyer is much more motivated by the logic of the purchase. They know it’s a buyer’s market and they are much more educated than they have been in the past. So the way we approach our marketing today is providing much more transparency around the product and the pricing. We let people know that we are very aggressively priced within each marketplace. We share all the information within our marketplace based on pricing and activity to demonstrate to them what’s the best option is from a logical standpoint for their purchase. Are more deals falling through now?

O’Brien: I would say it’s no different than from the past. There are conversion and fallout rates through the process at any time. Anyone who gets to the point today of signing a contract and putting their deposit down typically is going to proceed with the transaction. The main issue in today’s market is people who bought under a pre-sale agreement two years ago are being asked to close on their transaction now that a building is being delivered. The ability to obtain financing has slowed significantly for some individuals, and in some cases they aren’t able to physically close on the building based on their financial situation today. Any new projects in the works?

O’Brien: We have a number of developable lands at the majority of our resort locations. And we continue to hold planning sessions for the best utilization for those properties and lands. So we are very involved in the planning process for future development. The only thing that has changed is the timing of the next development and when you actually pull the trigger for the next project in your pipeline. Once again, it’s goes back to the marketplace. The reality today is, A, it’s a buyer’s market and, B, in a lot of locations, people can purchase real estate below the construction costs of that real estate and that tells you that you don’t want to build in that environment until the pricing comes back to a reasonable level where it’s above the cost of construction for the project. What advice would give an owner of a luxury condo hotel unit today?

O’Brien: The main advice to anyone owning in a condo hotel property today is that if you do not need to sell now, you should not be selling your holding. The reality is, in most of the markets we are probably close to or at the bottom in terms of pricing and based on 150 years of real estate statistics, we are going to see a rebound in pricing at some point in the next 12 to 24 months. So anyone who owns in a condo hotel, I would say continue using it and enjoying it, experience the lifestyle and look to a longer-term perspective in terms of what your selling strategy is.

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