Wednesday, February 3, 2010

Can the Merger of Clubs and Condos Save Both from the Recession?

by Gamal Hennessy

New York Magazine reported earlier this week that Ohm, one of the newer buildings on 11th Avenue and the Highline is going to open part of the space for live music acts, rotating DJ parties and open mic nights. While some might see this as a desperate move by the real estate developers, it could be the start of an innovative strategy that aligns the interests of developers and operators in tough economic times.

Several groups face challenges after the real estate boom ended. Operators are trying to discover ways to stay in New York and keep their venues profitable amid rising costs. Developers are trying to discover ways to recover from the economic downturn and turn their expensive buildings into places that attract people and make money. The city has a vested interest in both seeing the buildings succeed and retaining nightlife venues. This convergence of interests could create a situation in which the three groups work together instead of separately as they have in the past.

Two Great Tastes That Taste Great Together
It is standard business practice in Las Vegas, Miami and on Caribbean resorts to place nightlife venues inside hotel properties. While these venues are often described as additional amenities for hotel guests, clubs and lounges inside these properties attract thousands of patrons who are guests of other hotels or residents of the city. The situation allows the hotel to draw a substantial stream of revenue which wouldn’t be tapped into if they only served their own guests. The combination is so common in Las Vegas that it is difficult to find a club that isn’t in a hotel. This marriage of convenience benefits the hotel owners, the club owners and the city itself.

Venues inside hotels are not uncommon in New York City. Times Square, Columbus Circle, the Meatpacking District, SoHo and other parts of the city all boast hotels that include at least one nightlife venue. The SoHo and TriBeCa Grands, Above Allen, The Standard, the Gansevoort, the Maritime Hotel and the Empire Hotel come to mind instantly. The clubs generate revenue and marketing buzz for the hotel, making it a more attractive place for tourists to stay and a destination of choice for residents. While it is much more common to find independent nightlife venues in New York City,
the hotel club or lounge is not a new phenomenon in the city.

Can Ohm take that idea to another level? What prevents a real estate developer sitting on an overpriced, vacant West Chelsea condo building from converting part of it into a lounge? Why can’t she generate a small stream of revenue while the real estate market is soft, using the club as a way to attract potential buyers to see the location, moving the name of the building out into the public, providing an “exclusive” perk to new buyers and becoming the first place that young professionals want to live when the market picks up again? If the hotel lounge can work, then what prevents the condo lounge from working as well?

There are several conditions that may prevent this idea from working. A building that is already planned or completed might not have the proper space to retrofit a lounge or it might not have the proper sound proofing to serve the lounge and the adjacent units. Obtaining a liquor license for a condo building might be difficult, especially if hostile community boards see the condo lounge as a tactic for operators to sneak back into the neighborhood. Families with children might avoid a building that is known for club activity. The wear and tear on a building increases in area where patrons congregate. The property value of the units might decrease sharply if fanatic activity rises. There could be existing laws that prevent a building owner from offering this type of service. By nature, hotel guests are transient so they might be willing to accept what permanent residents won’t. The condo lounge is not an idea without risks, but a developer sitting on a mostly abandoned building who knows a savvy operator might be able to create a mutually beneficial situation for the building owner and the operator.

Nightlife is not the natural enemy of real estate development. The ability of the two groups to work together is contingent upon politics and economics. Any law or political situation that prevents venues and buildings from prospering together can be changed if the perceptions of the people are changed. The ability to retain jobs, and tax revenue and spending in the city is a product of the two groups working together. A dialogue that includes nightlife as part of the solution - instead of the problem - has the potential to benefit the developers, the operators and the city.

Have fun.


mm said...

interesting article. i wonder what the vacancy rates are in the building...

New York Nights said...

I assume the vacancy rates are fairly high, since the Wall Street types who used to use their year end bonuses as the down payments are still in recovery mode, and the international types who used to buy these places as investment properties are still skittish. Occupancy rates will come back, and a little nightlife could be the thing that brings the buyers back...