SAN FRANCISCO

The proposal immediately caused a furor among city leaders, so much so that today the supervisor whose district includes the Fairmont plans to introduce a measure that would ban large hotels from making such conversions.

"Turning the Fairmont into luxury condos would be like turning the Eiffel Tower into an office building," said Board of Supervisors President Aaron Peskin. "It's not the Fairmont Condo Tower. It's the Fairmont Hotel."

The owners, a group of individual investors including Oakland A's owner Lewis Wolff, say their proposal is in the very early stages. Heather Castellari, vice president of asset management for the group, said owners want to convert a 23-story tower that is annexed to the hotel into residential housing, likely condominiums.

The tower, which was added in 1961 to expand the nearly 100-year-old original hotel, is accessible through the main building.

The project would convert 226 rooms in the 591-room Fairmont into 60 housing units, according to the owners.

"The landmark portion of the hotel won't be touched," Castellari said. "That will continue to operate as a hotel. All the ballrooms, all the public spaces will be exactly as they are."

The project would generate $1 million to $1.5 million in taxes and revenues each year and create about 300 union jobs during the conversion, owners predict.

The Fairmont is among San Francisco's most historic landmarks. It is where the delegates met in 1945 to draft the United Nations Charter and is also where Tony Bennett first sang "I Left My Heart in San Francisco," according to the Internet site www.historichotels.org.

Beginning with Harry Truman, every U.S. president has stayed at the Fairmont, with the exception of George W. Bush, who has not visited San Francisco since taking office.

The plan to convert the hotel -- a venue for high society wedding receptions and often the first choice for lodging for elite hotel guests -- is echoed in similar activity outside San Francisco.

Last year, New York City Mayor Michael Bloomberg helped negotiate a compromise deal that preserved nearly half of the rooms at the famous Plaza Hotel from a proposal to convert the entire building into stores and apartments.

The New York City plan still calls for converting 180 rooms into condominiums, apartments and shopping spaces.

The Fairmont's owners, Castellari said, "saw a need in San Francisco for housing."

"In the long term, we think it's a win-win for everyone involved," she said.

Peskin disagrees. He says his opposition to the proposal has nothing to do with the fact that the Fairmont is one of 14 San Francisco hotels involved in a nearly year-long battle with labor unions that included a strike, lockouts and picket lines.

"The fact that this phenomenon (of tourist hotel conversions) has been spreading coast to coast is not a function of labor negotiations between hotel workers and hotel owners," he said. "Frankly, it's not about wages and benefits. This is about the Fairmont Hotel remaining the Fairmont Hotel."

Leaders of the union representing hotel workers could not be reached for comment.

At today's Board of Supervisors meeting, Peskin plans to propose an ordinance, which he says already has the support of eight out of 10 colleagues, that would prohibit tourist hotels with more than 50 rooms from converting lodging space into condominiums or other housing units.

Castellari would not comment on Peskin's resolution.

"We've been very pleased with the hotel business in San Francisco, but we don't think there's a need for additional hotel rooms," she said. "We think there's a need for additional housing."  - by Cecilia Vegas,   CHRONICLE,   19 July 2005

More hotels are creating condos

Buyers get luxurious San Francisco digs while hotel owners reap a premium return when well-located, well-appointed hotels mix guest rooms with condominiums. It's a trend that accelerated when the Fairmont Hotel announced it will convert more than a third of its guest rooms to condominiums.

If that conversion goes forward, the Fairmont will join several other high-end hotels that already offer pricey condos.

The 277-room Four Seasons Hotel built 142 condos into its Market Street building when it opened in 2001, and the 260-room St. Regis San Francisco plans to include 102 spacious condos when it opens just south of Market on Fourth Street in November.

Typical two-bedroom units in such prime properties sell for more than $1 million to affluent buyers who covet a city residence with all the amenities of a deluxe hotel: housekeeping, room service, laundry, concierge services, plus the prestige of living there. The St. Regis condo units start at $1,495, 000.

Living in hotels full time has long been a staple at a handful of high- end properties, such as New York's Carlyle Hotel and Pierre Hotel, said Mark Eble, who monitors national hotel trends for PKF Consulting from Indianapolis. The new wrinkle is for affluent buyers to live just part time in a hotel and rent out their residences when they're not at home, Eble said.

The deal is a winner for hotel operators because they can harvest more revenue by getting in on the hot residential market than they can from simply renting out hotel rooms. Buyers who rent their hotel condos split the proceeds with the hotel, creating a nice revenue stream for owner and hotelier.

"It's a smart business plan, especially in New York and San Francisco, which have great hotels in great locations,'' said Thomas Callahan, head of PKF Consulting's San Francisco office.

San Francisco's 591-room Fairmont Hotel says it plans to convert the 226 rooms in its tower wing into condos.

The Fairmont's example could spur more conversions of hotel rooms into condos, though hospitality industry experts say they don't expect the number of conversions to be large enough to harm the city's vital tourism industry by taking too many rooms off the hotel market.

"I know of four hotel owners in San Francisco who are looking at (conversion),'' said Callahan. He declined to name them.

A relatively small number of conversions shouldn't hurt tourism, said John Marks, president of the San Francisco Convention and Visitors Bureau, which promotes tourism in the city and environs, noting that San Francisco has nearly 34,000 hotel rooms.

In addition to New York, Marks said tourist hotels have partly converted to condos in Washington, D.C., and Chicago. "It is absolutely a trend in the hotel industry to consider converting a portion of the hotel into condos,'' Marks said.

For hoteliers considering such a move, timing is everything, said industry consultant Anwar Elgonemy, a vice president at Jones Lang LaSalle Hotels.

For hotels that move quickly, the payoff can be prime, he noted.

The Fairmont San Francisco's owners have not said what they will charge for condos in the Fairmont tower, a stark, 1961 addition to the stolidly ornate 1907 hotel atop Nob Hill.

Industry observers say such condos command at least $1,000 per square foot. According to Elgonemy, the average price for a San Francisco condo in a residential building, as differentiated from a hotel, is $850 per square foot. The amenities and prestige of a hotel account for the difference. - by David Armstrong & Cecilia Vegas,   CHRONICLE,   20 July 2005