NoMad Ritz-Carlton Sells Out Condo Units Thanks To Airbnb Workaround

New York City's zoning map and restrictions on short-term rentals have opened the door for a niche type of development to seize on investor demand for condos that can be rented to tourists.

The 16 penthouse condo units atop the Ritz-Carlton New York NoMad have sold out, all to investors looking to rent out the units on a short-term basis because the building has commercial zoning and can't be used as a full-time residence, Bisnow can first report. Half of all buyers in the building, which opened last July, were international investors. It set a neighborhood record for price with a $7.8M penthouse sale, The Real Deal previously reported.

“Given the restrictions that are in place, there was always a need for more short-term housing options,” said Erin Boisson Aries, Global Luxury Real Estate Advisor at Douglas Elliman who led sales and strategy for the building's developer, Flag Luxury Group. “It speaks to the need for people that don't want to necessarily sign a four-year lease, or buy a condo that they will only be using part time.”

The model allows buyers to purchase a one- or two-bedroom penthouse suite at the Residences at Ritz-Carlton New York NoMad, with access to all the hotel’s amenities. The property’s commercial M-1 zoning means that people staying in the condos can only do so for 29 days at a time, and can spend a maximum of 120 days per calendar year in the residences. The rest of the time, the hotel itself will lease out and manage the units on behalf of the owners, taking a slice of the profits as part of the deal.

“There's a lot of talk about repositioning and repurposing underutilized commercial assets,” Boisson Aries said. “While the concept won't work everywhere, and in any building, there's definitely potential for savvy developers to sort of think outside of the box with more flexible types of housing options, like this one.”

The model has been tried and tested in other global cities like Miami, Douglas Elliman Real Estate Managing Director Adam Zucker said. The trend in Miami has contributed to housing shortages, as developers build condos designed for short-term rentals, which are more profitable than the much-needed housing they are also able to build on the sites.

However, NYC’s restrictions on short-term stays, coupled with the need for accommodation, create an opportunity for this type of unit’s existence, Zucker and Boisson Aries said. Most condos and co-ops, like any rental apartment in the city, typically require one-year leases. The city has moved to crack down on Airbnb and other short-term rentals in recent years, most recently allowing owners to register residential properties where tenants are not allowed to rent out units as Airbnbs with a city database.

But the Ritz-Carlton’s sellout success points to a trend that has been in NYC since long before the pandemic, Zucker said. The city’s standing as a powerful hub for both international and domestic business means that people from other U.S. states and elsewhere in the world often need somewhere to stay for longer trips, he said, creating a market for short-term rentals.

“Whether you're a doctor or a professional and you need a place to hang your hat after a long day or for a week at a time, there has always been that market,” he said. “Not only does it cater to a flexible use, but more importantly, I think what we're seeing with all of these buyers [is that] people were motivated by not having an empty apartment.”

Following the concept’s debut, other hotels, including the Fasano Fifth Avenue and the Maison Hudson, are exploring how the model could work for them. Both the Fasano’s 10 units and Maison Hudson’s 11 units that could fit the Ritz-Carlton NoMad's model are residentially zoned, meaning stays must exceed 30 days.

Still, the model’s potential in NYC is limited, Miller Samuel CEO Jonathan Miller said in an interview, with appetite mostly restricted to individual investors because of the opportunity’s unproven nature.

“Institutional investors want to make sure this isn't a one-off,” he said. “I would think they want to see this as the beginning of a trend or a new form of housing that's going to be widely accepted.”