With L.A.’s real estate market sizzling, these should be exciting and profitable times for condominium developer Avi Brosh.
So why is Brosh wringing his hands?
Because L.A.’s high housing prices have attracted deep-pocketed homebuilders that are out-bidding small-to-moderate-size local developers like him. Then there’s the prospect of a possible real estate bubble bursting, which could leave Brosh and his Palisades Development with a bunch of expensive condos and very few buyers.
“We needed to take some emphasis off for-sale housing in an environment that is slightly uncertain,” Brosh said. “I knew we had to go in a different direction.”
Brosh has created PaliHouse an extended-stay hotel business that offers condos, guest suites and a ground-floor restaurant at each of its locations. One-third of the 50 or so units will be for sale, with the remainder leased to guests for 30-day minimum stays. Requiring that length of stay avoids paying city taxes on hotel rooms. Most municipalities only tax stays that are less than 30 days.
The restaurants, each with a bar, will double as room service.
“We are absolutely trying to stay out of the way of the big players,” he said. “We’re just trying to fill this niche, this boutique void, which I think is untapped right now.”
But the extended-stay market in Los Angeles is well-established and has proven very lucrative. The units are typically leased to companies relocating employees or to insurance companies whose clients’ homes have been damaged. Sometimes, out-of-town consultants just need a place to stay for an extended assignment.
New competition
Extended stay units average about 800 square feet for a one-bedroom nearly three times the size of the typical hotel room. The suites have kitchens outfitted with everything from pots and pans to silverware and toaster ovens.
The biggest player is Los Angeles-based Oakwood Worldwide, which owns 3,000 units from Woodland Hills to Long Beach and master leases on another 1,000 units. That gives the company control over half the 8,000 extended stay units in L.A., according to the Highland Group, an Atlanta-based firm tracking the lodging industry.
“We’re kind of the 800-pound gorilla in this market,” said Jonathan West, Oakwood’s senior vice president of sales and marketing. “There have been attempts by competitors to open units and I think they failed because we are so strong.”
L.A. also happens to be Oakwood’s biggest market. West said that Oakwood is looking to add units because demand from its clients has exceeded supply.
Still, Brosh believes his units will have an edge. While Oakwood’s properties are essentially apartment buildings, PaliHouse will resemble stylish boutique hotels with high-end trims.
And with higher style and service, Brosh believes he may also be able to pull people staying in traditional hotels. “Other projects are more real estate based, while our hotel-style business is more service based,” he said.
Brosh broke ground last week on the first PaliHouse on Holloway Drive, just off Santa Monica Boulevard in West Hollywood. The $30 million project, which will have 16 fully furnished condos and 21 suites, was designed to resemble an inn from New Orleans’ French Quarter even though it has distinctly L.A. features, such as a central courtyard with a bamboo garden.
Growing sector
Early next year, Brosh expects to break ground on his second PaliHouse at 1717 Vine St., which is just north of Hollywood Boulevard. The $40 million development, which has already received preliminary city approvals, will have 15 condos and 42 guest suites. Other units are planned for Venice and Palm Springs.
“It’s a niche that makes sense,” said Bruce Baltin, senior vice president at PKF Consulting. “People who reflect that lifestyle, like in the entertainment or design industry or in advertising, will want to be there.” (PKF has worked for Brosh, but not on his PaliHouse concept.)
Nationally, Baltin said revenues and occupancy rates in the extended stay market have grown faster than the overall hospitality industry. While that may be true, L.A.’s market was relatively flat last year, according to the Highland Group.
The average rate was $75.50 a day, down $3 from a year ago, and occupancy was 81.3 percent, marginally higher than the year before.
Still, that’s higher than the 2004 national average of $64 a day and 73.5 percent occupancy.
Baltin said the biggest challenge is recruiting an able management team, although Brosh doesn’t think it will be difficult to find experienced employees and restaurateurs.
Meanwhile, Brosh is negotiating to buy the 250-room tower of the Furama Hotel on Lincoln Boulevard from Decron Properties Corp., which is redeveloping the remainder of the property into apartments and retail. “This may spring board us into doing straightforward hotels,” he said.
