Texan in NYC
newbie
Effective today, my wife and I are the happy owners of a studio in the Phillips Club, a fractional hotel/condo property located on the upper west side of Manhattan. The property is located next to Lincoln Center in a desirable (if touristy) section of town.
Building
The Phillips Club was originally developed in 2000 by Millenium Partners, a developer/operator of various other luxury properties. This project, known as Phillips Club 1, was highly successful, and was fully sold. (For some reason, the earliest recorded sales I could find were in 2003; before then, I think the building was an extended stay hotel, not a fractional property.) The building is now controlled by the owner’s HOA. I believe there are around 80 units in a mix of studios, 1BRs, and 2BRs.
The project was so successful that Millenium Partners immediately embarked on a second phase next door, which shares common space with Phillips Club 1. That project is known as Phillips Club 2. I believe there are around 88 units in Phillips 2.
Owners in both Phillips 1 and Phillips 2 have a 1/8th fractional, deeded interest in a particular unit; thus, each unit is sold 8x by the developer. On average, a 1/8th interest would equate to 46 days of use per year. Each unit is covenanted such that other owners of the same unit type in the club may use your unit through the Phillips reservation system. Thus, even though you have a “deeded” interest, upon check-in, there is no guaranty that you will actually stay in “your” unit.
Units in Phillips 1 and Phillips 2 are served by a common infrastructure (e.g., concierge, 24-hour business center, residents’ lounge, limited storage for personal items, etc.) Owners also have, during their stay, day pass access to the Reebok Club, an excellent gym nearby that is also operated by Millenium Partners. (The Reebok club access is not protected by long-term contract or covenant, however, and should be considered an incidental benefit of the fact that Millenium Partners has the management contract at both properties.)
Units in Phillips 1 and Phillips 2 are NOT identical. Phillips 2 units are, on average, slightly larger. For example, the studios in Phillips 1 are approximately 500 sq. ft., while the studios in Phillips 2 are approximately 625 sq. ft. Additionally, because it was more recently built, Phillips 2 has better furnishings (e.g., flat panel HDTVs, Bose Sound dock, etc.) The stylistic décor is broadly similar (e.g., neutral colors, consistent photography décor, Herman Miller desk chair, etc.) You can get a sense of the differences and similarities by comparing these photos:
Phillips 1 décor
Phillips 2 décor
The studios also have one other significant difference: Phillips 1 studios have a kitchenette only, whereas studios in Phillips 2 have a full kitchen.
I was impressed with the property during my walk through. Original build quality is excellent, for example, all windows are triple-paned glass with no air or sound leakage. Common areas are well kept. The building appears to be conducting adequate opex. The staff with whom I interacted were professional, courteous, and helpful. Overall, I would describe the Phillips Club as a well-run W or a high end Starwood hotel—not tippy top grade (e.g., Mandarin Oriental), but upscale and more than adequate for brief visits to NYC.
Other Privileges
The Phillips Club enjoys no formal exchange program with any other properties. However, Millenium Partners (for reasons unknown to me) has informally arranged exchanges with the Four Seasons Aviara north of San Diego, and the Four Seasons Troon in Scottsdale, both of which are also fractional properties. I have no idea how Millenium does this. This benefit, like the Reebok club, should be considered an incidental benefit, and not one protected by contract. I have no visibility into how available exchanges actually are.
Reservation Rules
The Phillips Club reservation system works as follows:
Once a year around May, residents have an opportunity to make an “annual reservation”, which is a 1 week booking (max) for sometime in the next 12 months. Some residents use the annual reservation to book ahead for peak times such as Thanksgiving, Xmas week, etc. However not all residents opt to use the annual reservation in May because they cannot plan that far ahead. Instead, they make the reservation later in the year. However, when they do this, their annual reservation is granted on an as-available basis. If there are conflicts among owners for the annual reservation slot, ties are broken using a rotating tiebreaking system in which in each year, owners have a different “priority number”. I have been told that conflicts among annual reservation requests, and use of the tiebreaker rules, are rare.
In addition to the annual reservation, owners are permitted to place two “advance reservations” on the book at any time (excluding the annual reservation). The advance reservations may be up to 1 week in length, but need not be. Nor does the advance reservation need to begin on a certain day of the week. Advance reservations are filled on a first-come, first-served basis. You may change your advance reservation at any time, but you may never have more than two of them on the book at any time. Note that under the rules, you are permitted to put both advance reservations on the book for the same week, in which case you would hold 2 units for up to a week. Or you could put them back to back, in which case you would be permitted to stay in the club for up to 14 days. The only way to stay longer than 14 days would be to use the two advance reservations in conjunction with the annual reservation.
In addition to the annual and advance reservations, owners may also place “short term reservations”. These reservations must be made within 5 days of use, and can be no longer than 3 days in length. Short term reservations are made on a space available basis. If the short-term reservation is within 48 hours, if your unit type is full, and if the management company determines that there is likely to be excess capacity of a different unit type, the short-term reservations may be fulfilled with units other than the unit type you own. For instance, the owner of a studio may be booked into a 1BR unit if no studios are available, and management determines that there is a surplus of 1 BR units.
Members may make reservations for non-members such as friends and family. There is no charge for this. Members need not accompany the non-members at check-in. Members may NOT, however, rent out their units (without HOA approval, which I’m sure is never granted). I’m not sure how the Phillips Club enforces the anti-renting rules, but if you are found to have violated the rules, the renter can be ejected by the club, and the club can commence legal proceedings against you including collecting its attorney fees.
Finally, while a 1/8th fractional interest on average works out to 46 days of use, the Club has no explicit limit on how many days you may stay per year. In the past, some members have used in excess of 46 days (while obviously, most members use fewer than their allotted amount).
Fees
Like any condo, owners pay a monthly HOA fee. 25% of the fee goes to paying property tax; 25% goes to building a reserve fund; and the remainder of the fee is used for common charges. Studio apartments in Phillips 1 have maintenance fees of $3600/year, and studios in Phillips 2 have maintenance fees of $4900/year.
Phillips 1 maintains a large reserve fund at the moment, however I will not reveal the size of the fund on a public forum.
Increases to monthly fees in Phillips 1 are determined by the HOA, since the building is now entirely owner-occupied and owner-controlled; increases on Phillips 2 are controlled by the developer at this point, but will revert to the HOA after a certain percentage of units are sold. Historically, the increases in maintenance fees for Phillips 1 have tracked the rate of inflation; the exception to this was when Mayor Bloomberg implemented a large property tax increase in 2002.
In addition to monthly fees, owners pay certain usage fees. Studios are charged $21/day for mandatory housekeeping, and a $40 cleaning fee upon check-out. (Larger units are charged more.) If the owner has taken advantage of the portable wardrobe to store personal items between visits, there is a $7/visit moving fee for the staff to bring the wardrobe to and from the basement. The Phillips Club allows owners to bring pets, and I believe there is a $50/visit cleaning fee for owners who take advantage of this.
Resales
Through my due diligence, I determined that unit values on the Phillips 1 have appreciated over time, although the rate of appreciation was modest. For example, in 2005, studio apartments purchased from the developer in Phillips 1 were selling for approximately $125k. In the past 12 months, those same units have resold for between $145k-$149k. Thus, in two years, unit prices have increased about 18%. (The original price on Phillips 1 studios, offered in 2003, was apparently $120k)
This appreciation has materially underperformed the broader NYC real estate market. One reason for this, I suspect, is simple oversupply: remember that each unit is sold 8x, so there is a lot of “invisible supply.” My view is that long-term appreciation for units in the Phillips Club is limited, and that you should be happy with price increases in line with the rate of inflation.
Moreover, as with all timeshare/fractional properties, the sales commissions for a reselling owner are very high. Millenium Partners, who now is the operator for Phillips 1, and is the sponsor/operator for Phillips 2, will resell on behalf of owners, however they charge a 15% commission. Units can also be privately resold through a real estate broker, however brokers typically charge 8% rather than the NYC standard of 6%, due to the additional difficulty of explaining, showing, and selling fractional interest properties.
Net net: Phillips Club units have very modest price appreciation potential, and almost all gains are likely to be wiped out by sales commissions.
Our Story
My wife and I are probably unusual owners for the Phillips Club because we actually live in NYC.
We have purchased a unit for two reasons: First, to have a “guest bedroom” for the family and friends who until now have slept in our living room when they came to town. Second, my wife and I do not intend to stay in NYC long term, but we like the city, and would not mind owning an affordable pied a terre long-term. My wife and I purchased the Phillips 1 studio with cash, and my parents (who came to town 20 days last year to visit their newborn grandchild), will pay all maintenance fees. We expect that guests will pay user fees.
When I started to analyze the Phillips Club, my starting point was that to be economical, the cost-per-night had to be superior to the cost of comparable hotel rooms. Some quick analysis showed that this was viable only with studio sized units—in my opinion, 1 bedroom units (whether in Phillips 1 or Phillips 2) are more expensive than hotel accommodations, under any set of reasonable assumptions. The trick in my mind, therefore, was finding the cheapest available unit.
Studios in the new development, Phillips 2, are selling for $195k. Prices are non-negotiable. I learned that through Millenium Partners one owner in Phillips 1 was selling a studio for $160k (probably negotiable to $155k). It was immediately clear to me that purchasing in Phillips 1 was the sensible decision; sure, it would be nicer if my guests could watch TV on a 42” Panasonic plasma instead of an old-style tube TV—but I realized that if I bought in the newer development, it would be tantamount to paying $40k for a TV. That made no sense.
The next question was whether I could do better on price than what was being resold through the developer. The obvious way to do this, I figured, was to cut out the sales fee, and capture that discount for myself. So I paid $10 for a subscription to an online service that allowed access to NYC property records, and I used the city’s ACRIS website, and I quickly found the names and addresses of a number of Phillips 1 studio owners. Then I went to Google, and managed to find telephone numbers and/or email addresses for approximately 8 owners. I researched their respective cost basis, and started calling them, to find out whether they were interested in selling to me directly.
As luck would have it, within 1 day, I identified a seller who was looking to sell because she had just rented an apartment full-time in NYC. We quickly agreed on price: $140k. This price was cheaper than anything I would be able to source through a broker or the developer, and at the same time would give more money to the seller than she would be able to get if she sold using a middleman. I instructed my lawyer to conduct fast-track due diligence, and we closed. (Closing took a frustratingly long time, due to the holidays and some difficulty in the seller assembling closing documents.)
One telling fact emerged from my purchase effort: existing studio owners at Phillips 1 are highly satisfied; while I managed to get in contact with everybody I could identify, 7 out of 8 owners refused to sell to me because they wanted to keep their interest in the club. I found this fact tremendously telling.
[TO BE CONTINUED]
Building
The Phillips Club was originally developed in 2000 by Millenium Partners, a developer/operator of various other luxury properties. This project, known as Phillips Club 1, was highly successful, and was fully sold. (For some reason, the earliest recorded sales I could find were in 2003; before then, I think the building was an extended stay hotel, not a fractional property.) The building is now controlled by the owner’s HOA. I believe there are around 80 units in a mix of studios, 1BRs, and 2BRs.
The project was so successful that Millenium Partners immediately embarked on a second phase next door, which shares common space with Phillips Club 1. That project is known as Phillips Club 2. I believe there are around 88 units in Phillips 2.
Owners in both Phillips 1 and Phillips 2 have a 1/8th fractional, deeded interest in a particular unit; thus, each unit is sold 8x by the developer. On average, a 1/8th interest would equate to 46 days of use per year. Each unit is covenanted such that other owners of the same unit type in the club may use your unit through the Phillips reservation system. Thus, even though you have a “deeded” interest, upon check-in, there is no guaranty that you will actually stay in “your” unit.
Units in Phillips 1 and Phillips 2 are served by a common infrastructure (e.g., concierge, 24-hour business center, residents’ lounge, limited storage for personal items, etc.) Owners also have, during their stay, day pass access to the Reebok Club, an excellent gym nearby that is also operated by Millenium Partners. (The Reebok club access is not protected by long-term contract or covenant, however, and should be considered an incidental benefit of the fact that Millenium Partners has the management contract at both properties.)
Units in Phillips 1 and Phillips 2 are NOT identical. Phillips 2 units are, on average, slightly larger. For example, the studios in Phillips 1 are approximately 500 sq. ft., while the studios in Phillips 2 are approximately 625 sq. ft. Additionally, because it was more recently built, Phillips 2 has better furnishings (e.g., flat panel HDTVs, Bose Sound dock, etc.) The stylistic décor is broadly similar (e.g., neutral colors, consistent photography décor, Herman Miller desk chair, etc.) You can get a sense of the differences and similarities by comparing these photos:
Phillips 1 décor
Phillips 2 décor
The studios also have one other significant difference: Phillips 1 studios have a kitchenette only, whereas studios in Phillips 2 have a full kitchen.
I was impressed with the property during my walk through. Original build quality is excellent, for example, all windows are triple-paned glass with no air or sound leakage. Common areas are well kept. The building appears to be conducting adequate opex. The staff with whom I interacted were professional, courteous, and helpful. Overall, I would describe the Phillips Club as a well-run W or a high end Starwood hotel—not tippy top grade (e.g., Mandarin Oriental), but upscale and more than adequate for brief visits to NYC.
Other Privileges
The Phillips Club enjoys no formal exchange program with any other properties. However, Millenium Partners (for reasons unknown to me) has informally arranged exchanges with the Four Seasons Aviara north of San Diego, and the Four Seasons Troon in Scottsdale, both of which are also fractional properties. I have no idea how Millenium does this. This benefit, like the Reebok club, should be considered an incidental benefit, and not one protected by contract. I have no visibility into how available exchanges actually are.
Reservation Rules
The Phillips Club reservation system works as follows:
Once a year around May, residents have an opportunity to make an “annual reservation”, which is a 1 week booking (max) for sometime in the next 12 months. Some residents use the annual reservation to book ahead for peak times such as Thanksgiving, Xmas week, etc. However not all residents opt to use the annual reservation in May because they cannot plan that far ahead. Instead, they make the reservation later in the year. However, when they do this, their annual reservation is granted on an as-available basis. If there are conflicts among owners for the annual reservation slot, ties are broken using a rotating tiebreaking system in which in each year, owners have a different “priority number”. I have been told that conflicts among annual reservation requests, and use of the tiebreaker rules, are rare.
In addition to the annual reservation, owners are permitted to place two “advance reservations” on the book at any time (excluding the annual reservation). The advance reservations may be up to 1 week in length, but need not be. Nor does the advance reservation need to begin on a certain day of the week. Advance reservations are filled on a first-come, first-served basis. You may change your advance reservation at any time, but you may never have more than two of them on the book at any time. Note that under the rules, you are permitted to put both advance reservations on the book for the same week, in which case you would hold 2 units for up to a week. Or you could put them back to back, in which case you would be permitted to stay in the club for up to 14 days. The only way to stay longer than 14 days would be to use the two advance reservations in conjunction with the annual reservation.
In addition to the annual and advance reservations, owners may also place “short term reservations”. These reservations must be made within 5 days of use, and can be no longer than 3 days in length. Short term reservations are made on a space available basis. If the short-term reservation is within 48 hours, if your unit type is full, and if the management company determines that there is likely to be excess capacity of a different unit type, the short-term reservations may be fulfilled with units other than the unit type you own. For instance, the owner of a studio may be booked into a 1BR unit if no studios are available, and management determines that there is a surplus of 1 BR units.
Members may make reservations for non-members such as friends and family. There is no charge for this. Members need not accompany the non-members at check-in. Members may NOT, however, rent out their units (without HOA approval, which I’m sure is never granted). I’m not sure how the Phillips Club enforces the anti-renting rules, but if you are found to have violated the rules, the renter can be ejected by the club, and the club can commence legal proceedings against you including collecting its attorney fees.
Finally, while a 1/8th fractional interest on average works out to 46 days of use, the Club has no explicit limit on how many days you may stay per year. In the past, some members have used in excess of 46 days (while obviously, most members use fewer than their allotted amount).
Fees
Like any condo, owners pay a monthly HOA fee. 25% of the fee goes to paying property tax; 25% goes to building a reserve fund; and the remainder of the fee is used for common charges. Studio apartments in Phillips 1 have maintenance fees of $3600/year, and studios in Phillips 2 have maintenance fees of $4900/year.
Phillips 1 maintains a large reserve fund at the moment, however I will not reveal the size of the fund on a public forum.
Increases to monthly fees in Phillips 1 are determined by the HOA, since the building is now entirely owner-occupied and owner-controlled; increases on Phillips 2 are controlled by the developer at this point, but will revert to the HOA after a certain percentage of units are sold. Historically, the increases in maintenance fees for Phillips 1 have tracked the rate of inflation; the exception to this was when Mayor Bloomberg implemented a large property tax increase in 2002.
In addition to monthly fees, owners pay certain usage fees. Studios are charged $21/day for mandatory housekeeping, and a $40 cleaning fee upon check-out. (Larger units are charged more.) If the owner has taken advantage of the portable wardrobe to store personal items between visits, there is a $7/visit moving fee for the staff to bring the wardrobe to and from the basement. The Phillips Club allows owners to bring pets, and I believe there is a $50/visit cleaning fee for owners who take advantage of this.
Resales
Through my due diligence, I determined that unit values on the Phillips 1 have appreciated over time, although the rate of appreciation was modest. For example, in 2005, studio apartments purchased from the developer in Phillips 1 were selling for approximately $125k. In the past 12 months, those same units have resold for between $145k-$149k. Thus, in two years, unit prices have increased about 18%. (The original price on Phillips 1 studios, offered in 2003, was apparently $120k)
This appreciation has materially underperformed the broader NYC real estate market. One reason for this, I suspect, is simple oversupply: remember that each unit is sold 8x, so there is a lot of “invisible supply.” My view is that long-term appreciation for units in the Phillips Club is limited, and that you should be happy with price increases in line with the rate of inflation.
Moreover, as with all timeshare/fractional properties, the sales commissions for a reselling owner are very high. Millenium Partners, who now is the operator for Phillips 1, and is the sponsor/operator for Phillips 2, will resell on behalf of owners, however they charge a 15% commission. Units can also be privately resold through a real estate broker, however brokers typically charge 8% rather than the NYC standard of 6%, due to the additional difficulty of explaining, showing, and selling fractional interest properties.
Net net: Phillips Club units have very modest price appreciation potential, and almost all gains are likely to be wiped out by sales commissions.
Our Story
My wife and I are probably unusual owners for the Phillips Club because we actually live in NYC.
We have purchased a unit for two reasons: First, to have a “guest bedroom” for the family and friends who until now have slept in our living room when they came to town. Second, my wife and I do not intend to stay in NYC long term, but we like the city, and would not mind owning an affordable pied a terre long-term. My wife and I purchased the Phillips 1 studio with cash, and my parents (who came to town 20 days last year to visit their newborn grandchild), will pay all maintenance fees. We expect that guests will pay user fees.
When I started to analyze the Phillips Club, my starting point was that to be economical, the cost-per-night had to be superior to the cost of comparable hotel rooms. Some quick analysis showed that this was viable only with studio sized units—in my opinion, 1 bedroom units (whether in Phillips 1 or Phillips 2) are more expensive than hotel accommodations, under any set of reasonable assumptions. The trick in my mind, therefore, was finding the cheapest available unit.
Studios in the new development, Phillips 2, are selling for $195k. Prices are non-negotiable. I learned that through Millenium Partners one owner in Phillips 1 was selling a studio for $160k (probably negotiable to $155k). It was immediately clear to me that purchasing in Phillips 1 was the sensible decision; sure, it would be nicer if my guests could watch TV on a 42” Panasonic plasma instead of an old-style tube TV—but I realized that if I bought in the newer development, it would be tantamount to paying $40k for a TV. That made no sense.
The next question was whether I could do better on price than what was being resold through the developer. The obvious way to do this, I figured, was to cut out the sales fee, and capture that discount for myself. So I paid $10 for a subscription to an online service that allowed access to NYC property records, and I used the city’s ACRIS website, and I quickly found the names and addresses of a number of Phillips 1 studio owners. Then I went to Google, and managed to find telephone numbers and/or email addresses for approximately 8 owners. I researched their respective cost basis, and started calling them, to find out whether they were interested in selling to me directly.
As luck would have it, within 1 day, I identified a seller who was looking to sell because she had just rented an apartment full-time in NYC. We quickly agreed on price: $140k. This price was cheaper than anything I would be able to source through a broker or the developer, and at the same time would give more money to the seller than she would be able to get if she sold using a middleman. I instructed my lawyer to conduct fast-track due diligence, and we closed. (Closing took a frustratingly long time, due to the holidays and some difficulty in the seller assembling closing documents.)
One telling fact emerged from my purchase effort: existing studio owners at Phillips 1 are highly satisfied; while I managed to get in contact with everybody I could identify, 7 out of 8 owners refused to sell to me because they wanted to keep their interest in the club. I found this fact tremendously telling.
[TO BE CONTINUED]
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