A Northern California developer has broken ground on a $23 million hotel in Hermosa Beach that is being touted as a “real estate investment with a twist.” The twist is that the 96-room, seafront hotel is being sold as a combination condominium and timeshare.
William Crowell of Menlo Park-based SeaView Development Co. said his company hopes to sell individual hotel rooms to buyers for $165,000 to $355,000 per room, depending on the view. Buyers will own the hotel rooms in the same way that condominium buyers own their units, he said.
The difference is that owners of “SeaView Ocean Lofts,” the name of the development at 14th Street and Beach Drive, will only be allowed to live in their rooms a maximum of 90 days per year and only up to 29 days at a time.
The limited-stay conditions are stipulated under the terms of SeaView’s permit approval by the California Coastal Commission and City of Hermosa Beach. The project site is in a commercial zone, which is why public officials would not approve a full-time residential project there.
When not occupied by their owners, the rooms will be rented out by Pacific Beach House LLC, a property management company owned by the same partnership that owns SeaView Development.
That partnership is a joint venture between Inwood Properties Inc. of Menlo Park and Keenan Land of Palo Alto. Crowell said his primary partner in SeaView Development and Pacific Beach House LLC is Chop Keenan, a veteran real estate owner and investor.
Proceeds from the rentals minus management and maintenance fees and travel agent commissions will be split between the unit owners and the hotel company, Crowell said.
The percentages of a room’s revenue that would go to the owner and to the hotel management company has not yet been determined, he added. But based on a 30 percent down payment by buyers and a 70 percent occupancy rate, each hotel room should generate enough revenue after three years to carry the owner’s mortgage payment, he said.
The overall hotel occupancy rate in the Los Angeles market is just under 70 percent, according to PKF Consulting.
Hotel industry experts said they were aware of no other such project along the California Coast except for another SeaView development, a 54-room hotel at Half Moon Bay that was completed in March.
“Whether this works will depend primarily on what kind of occupancy levels they can achieve,” said Tim Loft, a hotel specialist at Marcus & Millichap who formerly owned and operated a hotel in Manhattan Beach. Loft said similar projects have been operating for years in Hawaii and Florida, but they haven’t been developed along the California coast because there are few sites available, and getting approvals from the Coastal Commission is a drawn-out process.
Loft and John Kerin, who heads Marcus & Millichap’s Southern California operations, said the SeaView’s viability also depends on whether the project can command the rental rates being asked.
Those rates, per day, are $135 to $265 on weekdays and $155 to $300 on weekends, with price depending on view, according to Crowell.
Larry Kantor, director of hospitality consulting services in the L.A. office of Arthur Andersen LLP, said timeshares typically do not include actual ownership of the property. Usually, a timeshare buyer buys a right to use the property for a specified period of time, without taking actual title.
“There’s no question that a property on the beach in Hermosa Beach will likely be full from Memorial Day through Labor Day. The question is, on a Tuesday in February, when the fog rolls in and it’s too cold to swim, who’s going to be staying in these 96 units?” he said.
The project will be built in two phases, with 56 rooms in the first phase and 40 rooms in the second. Crowell said SeaView will begin selling the Hermosa Beach units this summer and expects to open the hotel in the spring of 1998.
He said the primary target market is “people in the 45-to-55 age bracket who want a nice weekend getaway and can appreciate the convenience that this provides.”
Several other developments were proposed for the site, but none were ever approved and completed. According to Loft, residents’ objections to a lack of parking in the area helped scuttle the earlier proposals.
Crowell said those concerns have been alleviated by a new parking structure the city plans to begin building on a nearby site this fall. That structure will contain 480 spaces, of which 100 will be leased by the hotel.