Forward sales of residential units are typically fundamental to a mixed-use project’s feasibility. Regardless of whether the residences are ultra-luxury or mid-market, their sale is often the key measure of financial viability.
Jan Hazelton, vice president, development, Kerzner International, commented: “Investors are very knowledgeable about having residential because it obviously helps with the returns on a project. And most luxury hotels are so expensive to build today that they probably can’t afford to exist alone without some residential to offset them.”
When configuring mixed-use developments, there is the benefit of sharing amenities and services - gyms, pools, concierge - between hotel guests and residents. There is also the economic advantage of sharing some job roles and back-of-house functions.
Homeowners contribute to the shared amenities by paying home ownership association (HOA) fees and this fact needs careful consideration.
Hazleton added: “We try and fairly allocate the expenses because we are mindful of making sure that the HOA won't be burdened with a significant ongoing maintenance cost, because that's always a factor when you're trying to sell.”
Local and purposeful
Jonathan Wingo, global head of residential projects at Hilton, added that there are certainly synergies to be had in mixed-use developments, but the private residences need to make sense in their own right. Long-term sustainability is the goal rather than the developer simply adding in the apartments to gain upfront capital.
He commented: “We're looking to create lifestyles. So, we want to make sure that the programming makes sense, that [the developer] is not taking a generic approach, but a local, purposeful approach to each project.”
Hilton has a portfolio of 75 private residences attached to hotels representing 10,000 units; half are trading, and half are in the pipeline, said Wingo. There are 12 Hilton brands that operate in the branded residence space, including the luxury brands Waldorf Astoria, Conrad, and LXR.
Kerzner International operates three residence brands: Atlantis; One & Only; and SIRO.
The One & Only brand has private homes in five out of 14 resorts. A further three resorts with private residences are scheduled to open in Montana (November 2025), Antigua (2027) and Hudson Valley (2028).
In the interests of exclusivity, Hazelton said One & Only has set itself a limit of 35 locations: “We’re super particular about where we put our properties and they have to be in spectacular locations that will drive interest in people having a home there as well.”
She added: “There’s always a push and pull between [resort] operations and the residential team because we want to be able to offset costs. If you have a large component of residential units then you may want them to have their own set of amenities. If it’s a smaller component, then they’re going to use the hotel amenities. You have to figure out the right balance.”
Flexible governance
Governing documents are critical to a project’s success as they lay out how the property will function for years to come, said Wingo. This includes when renovations will happen and how brand standards will be respected and understood by the various boards and stakeholders who are involved now and in the future.
Rules of play need to be established in advance but also have some built-in flexibility, he said. The Waldorf Astoria brand standards, for instance, do not typically provide for studio apartments, but in the case of the newly renovated Waldorf Astoria New York, a small number of studios made sense because they solved space constraints within the historic building and allowed some home buyers to purchase an extension to an adjacent unit.
For investors, the sales premium and the speed of sales associated with branded residences are important pull factors, said Wingo, and having the involvement of a major global brand like Hilton gives a vote of confidence: “We’ve done our homework, we’re partnering with these developers to move forward and see it through. And so it makes lending or financing these projects a little easier.”
For Hazelton the optimal financial solution is to use pre-sales as part of the equity: “That really helps your capital stack.”
However, not all US states or countries permit this: “We've looked at some projects that have difficulty because the state regulations don't allow us to use the pre-sales. And so that creates a whole different situation, which can be troublesome.”
Distribution of costs
How do stakeholders make sure that costs across a mixed-use development are distributed fairly? This is either done on a gross-floor-area basis, or every line item gets its own allocation and rationale, said Wingo.
“But then there are also times when you must step back and ask: ‘Does this seem fair?’ You need to make sure that for all the stakeholders - which may include office and retail - that everyone's share looks proportionate. I mean, you wouldn't allocate the same costs to a parking garage as you would to the hotel or residences.”
In terms of building schedules in a resort setting, Hazelton said that if the capital stack allows it, the ideal situation is to have everything built and opening at the same time, to avoid ongoing construction after homeowners have already moved in.