New York-based developer Related Cos. was closing in on a deal to purchase the St. Regis hotel last week, with plans to convert the Century City property into condominiums, according to sources close to the transaction.

The agreement, expected to be finalized late last week, would have Related paying a consortium led by Phoenix-based Pivotal Group Inc. about $125 million for the struggling hotel, which was put on the market in August.

It would also place Related in the middle of a searing labor dispute. The hotel's 200 unionized workers, along with those at eight other hotels in the L.A. area, are locked in a stalemate over terms of a new contract to replace one that expired in April.

With the dispute potentially flaring into a strike or lockout, officials with Unite HERE make no secret of their plans to draw Related into their battle with nationwide hotel chains.

"We are extremely concerned," said Maria Elena Durazo, president of the union's Local 11. "We are going to do all we can to protect those 200 jobs so workers don't end up on the street."

One thing the union could do is place pressure on L.A. officials not to approve the condo conversion, arguing that the loss of nearly 300 luxury hotel rooms will result in lost city hotel and sales tax revenues.

Related is also in negotiations with the Grand Avenue Authority, made up of administrators and elected officials from the city of Los Angeles, as well as L.A. County, for development of the $1.2 billion Grand Avenue mixed use project in downtown L.A.

Since Related hadn't yet provided a non-refundable deposit for the St. Regis property, sources warned last week that the deal could fall apart.

Related spokeswoman Alicia Goldstein said company executives had no comment. Pivotal Chairman and Chief Executive Francis Najafi didn't return calls seeking comment.

Big price

At nearly $421,000 for each of the hotel's 297 rooms, the St. Regis sale would become the most expensive hospitality transactions in California this year, according to Alan Reay, president of Costa Mesa-based hotel consultancy and brokerage firm Atlas Hospitality Group.

"That's a record price per room," Reay said. "At that price it makes sense only if you do a condo conversion."

It's unclear if the sale depends on Related being able to secure rights from the city for the conversion. Steven L. McKenzie, managing director of Eastdil Realty, which has the listing, declined comment.

Architect Wade Killefer, who is designing conversions of two non-unionized hotels near downtown Los Angeles into condos, said the city's approval process hasn't been overly cumbersome.

He said the prime location of the St. Regis, its abundant parking and small floor plates make the hotel a perfect candidate for condo conversion. "That should work great," he said. "Those will be million-dollar units."

In September, condominiums selling in Century City's 90067 ZIP Code were selling for a median price of $705,000, according to DataQuick Information Systems.

Given the soaring real estate market, hotels are increasingly becoming candidates for condo conversion, according to Bruce Baltin, senior vice president at PKF Consulting.

Besides Killefer's two projects a Holiday Inn and a Best Western Mayfair the 773-room Furama Hotel at 8601 Lincoln Blvd. near Los Angeles International Airport is planning a partial condo conversion.

Rumors abound that the yet-undisclosed buyer of the 485-room Hyatt Regency Los Angeles and several bidders on the 188-room Hilton Checkers downtown may intend either a partial or full conversion into condominiums.

But the St. Regis would be the largest hotel to date to make an attempt at a full condo conversion in L.A. County.

"There's lots of interest, given the hotel market right now, in converting hotels to residential, especially in high-income areas," Baltin said. "But there are also lots of challenges which are the political issues as well as the structural issues."

Structurally, Killefer said, the hotel likely wouldn't present too many challenges for conversion, other than having to install operable windows. Converting hotels is less complicated and expensive than with office buildings because more plumbing and electrical systems already exist.

"When you convert an office building, you have to completely gut the interior," Killefer said. "With a hotel, sometimes you don't need to do much more than knock down some walls."

He said that combining the hotel's rooms into three- and four-bedroom luxury units could cost Related anywhere from $150 to $200 a square foot for construction, which works out to between $56 million to $75 million for the 373,700-square-foot St. Regis, at 2055 Avenue of the Stars.

Even with a high purchase price, substantial conversion costs and possible political barriers, converting the hotel into condominiums is likely to be profitable for Related.

The St. Regis' owners a consortium that includes Pivotal, AEW Partners and DMB Associates would continue to own the neighboring 724-room Westin Century Plaza hotel, another one of the unionized hotels whose workers are represented by Unite HERE.

The two properties originally had been one hotel until the present owners purchased them in 1999 for $220 million.

The group spent an additional $80 million upgrading the facilities and separating their operations though both properties are managed by Starwood Hotels & Resorts Worldwide Inc. and share a general manager.

"I'm somewhat surprised the sellers and potential buyers would think they could do this without first raising the concerns of the workers but also of elected officials and community leaders," said Durazo. "It shows you how little thinking and concern goes on by national chains about these issues."

Durazo said the union hasn't previously had to deal with the threat of a hotel being converted into condominiums, and she said the prospect opens up a new set of concerns for contract negotiations.

"We have things such as owners having to give us notice about a pending sale but frankly there's nothing with teeth in it," she said. "This is further evidence that workers need greater protections than the contracts we currently have."

For reprint and licensing requests for this article, CLICK HERE.