Some day, Doug Manchester might actually get to break ground on his five-building development on the downtown-waterfront Navy Broadway Complex site, but he's going to have to fight for every bureaucratic foot of ground he takes. The embattled proposal, which requires Manchester to build the Navy a new bayfront headquarters adjacent to Seaport Village, has been working its way through red tape for years now. Last week, Manchester stripped his master plan of the term "condo-hotel" and "condo-office," thus excising one of the more controversial features of the development, though he retained the right to put them back in at any time.
The explanation Manchester Development president Perry Dealy gave to a Voice of San Diego reporter is that the market for condo-hotels isn't very good, and the company may choose to bring in a standard hotel company. Critics believe Manchester did it simply to escape the regulatory vigil of the California Coastal Commission, the last real bureaucratic wall separating Manchester from his heart's desire.
First, for those in the audience who would rather surf than follow downtown real-estate politics, the definition of a condo-hotel: a room in a hotel, with full hotel amenities, owned, condo-style, by a private individual or organization. Typically, owners are limited to occupying the room only a certain number of days per year, the remainder of which the hotel rents the room. The owner makes some money back on his investment and gets a repeatable vacation with no worries about physical upkeep. The developer gets some capital while finishing construction, and the hotel gets a cut of the rental fee, plus it profits when the owner uses the amenities like massages or room service. Everyone's happy.
Nationally, the market for condo-hotels has been shaky.
"Generally speaking, there's a slowdown at the consumer level in buying the units," said Pat Ford, president of Lodging Econometrics, a New Hampshire-based real-estate consultancy. "Generally, it tracks with the second-home market."
Which suggests a strong future, given the recent study by the National Association of Realtors that said second-home purchases set record highs in 2006 both in volume and price, with particular strength in the vacation home market, as opposed to the investment market.
And, as Ford went on to say, "all real estate is local."
In San Diego, the major condo-hotel developments seem to be doing well. The Hard Rock Hotel downtown sold out in two separate days in 2006. The multi-million-dollar units at the Hotel Del Coronado just sold out at the start of July. The most recent collection of condo-hotel units, at the Diegan, have been moving slowly, but the sales staff says its because they haven't been doing any marketing as they wait to sign on a new company to rent the building.
Would the Manchester units also prove exceptional?
Robert Martinez, research director for the local real-estate consultancy MarketPointe Realty Advisors, argues that its proximity to downtown, the airport and Little Italy and its sweeping bay views will put it in the category of a Hard Rock, rather than run-of-the-mill units found in other parts of town.
"I would think that the demand would be there," he said.
Manchester critics argue that stripping the condo-hotels out of the master plan of the Navy Broadway Complex is merely an attempt to bypass the regulatory process. "They took condo-hotels out in the vain hope they could deceive the San Diego public and the Coastal Commission," said Ian Trowbridge, a member of the Navy Broadway Complex Coalition, which opposes the development.
The Coastal Commission, the regulatory body responsible for approving all development along the state's coast, has expressed a dim view of condo-hotels. "Staff has taken a pretty strong position that condo-hotels are not as supportive of public access and recreation as regular hotels," said Diana Lilly, a commission analyst.
Manchester had been filing application updates with the commission on a regular basis, until recently, when he decided he'd had enough of the delay. He pulled his application and took the position that because of the peculiar legalities of the property, he didn't need a permit. And for good measure, he sued the commission and some of its constituent members, including San Diego City Councilmember Ben Hueso. No one from Manchester Development responded to calls for comment.
But Trowbridge and others believe Manchester will lose the suit, and removing the condo-hotel language might make it easier to get commission approval should he have to reapply.
In the meantime, Dealy has also said Manchester might look for a standard hotel operator. San Diego has been profitable for hotel operators during the past decade, and a lot of other companies want to get in on the action. Last year, Ford said, only 660 new rooms came on line in San Diego, and this year that number should be 542. But many more hotels are under construction. In 2008, there will be 2,826 rooms in 17 new hotels, 2,679 rooms in 2009 and in 2010 and beyond-and this is when the Manchester hotels might open-they see another 23 hotels and more than 6,000 new rooms.
"The market will become increasingly competitive by then," Ford said.
Which is great for tourists, since prices will drop, but perhaps not so good for hotel profits, especially in hotels late to the market.