Planned Uptown Dallas tower would start as short stay rentals then switch to condos
The 26-story residential tower is planned for McKinney Avenue
A tower planned for Uptown Dallas will have lush hanging gardens, a sidewalk café and a pocket park.
What the McKinney Avenue high-rise won’t have are permanent residents.
That’s because the proposed project would be rented to a hotel operator.
Rastegar Property plans to build the 26-story tower on a triangular block at McKinney Avenue and Akard Street just north of downtown Dallas.
The building, which still needs planning approvals from the city, is to have 270 rental units. But instead of operating as apartments or condos, developer Ari Rastegar plans to lease the entire building to short-term stay firm Sonder Corp.
The San Francisco-based startup is renting luxury apartments in markets around the country to offer as hotel accommodations.
Rastegar said he has a deal to lease his Uptown building to Sonder for 10 years, then convert the building to residential condominiums.
“Because of their lease, we are able to get financing and de-risk the transaction,” he said. “I wanted to do condos from the beginning, but it didn’t make sense.”
Because of the prevalence of construction defect litigation and lender requirements to presell condo units, many developers are reluctant to tackle these projects.
“You can sue the developer and architect,” Rastegar said. “Plus you have to presell 50% of the units.
“Because of the 10-year lease, we did that strategically to get past the 10-year statute of limitation” for litigation, he said.
Sonder has raised about $400 million to expand its short-term stay concept. It’s one of several companies that are renting blocks of apartments to operate as hotel spaces in buildings all over the country.
“We are the first to do it on a whole building and finance condos like this,“ Rastegar said.
Several of the new short stay companies have rented blocks of apartments in North Texas to use as hotel rooms.
“Properties that combine traditional apartments with short-term rentals are popping up across the country’s major metros,” said Greg Willett, chief economist for Richardson-based apartment industry service firm RealPage. “The first projects are in downtown settings, but the concept of mixed-use residential buildings also should work in urban-style suburban locations like the Legacy area of Plano.”
With more than 43,000 rental units under construction, Dallas-Fort Worth is the fastest-growing apartment market in the country.
Converting some of their units into hotel rooms is a quick way for developers to fill empty apartments.
“Apartment owners tend to think of offering some hotel-style units as a potential opportunity worth exploring,” Willett said. “There’s minimal downside to trying this when so much brand new multifamily product is moving through the initial leasing process.
“While it’s a bit early to tell how the first projects are going to perform, combined uses could become common, even when apartment building activity slows,” he said. “The option of two potential revenue streams at one development simply reduces overall risk for the property.”
Rastegar said that when the lease with Sonder expires, he will renovate the planned Uptown high-rise into luxury for-sale units.
“When it is turned to condos, we want significantly less units — somewhere around 150 or 160 units,” he said.
While the 1899 McKinney Ave. project has received approvals from the Oak Lawn Committee, the tower must still get an OK from Dallas’ city plan commission and city council.
The developer needs a zoning change to allow for the height of the project and other changes.
The building was designed by Chicago-based architect Solomon Cordwell Buenz. Plans show a curvaceous glass tower with heavily landscaped balconies. There’s also a pocket park on McKinney Avenue.
Parking for the building would be in an underground garage.
Source: https://www.dallasnews.com/business/real-estate/2019/10/15/planned-uptown-dallas-tower-would-start-as-short-stay-rentals-then-switch-to-condos/