P&Z Addresses Condo-Hotels, First Floor Restrictions Let the Market Prevail
by Peter Kenworthy
Jan 23, 2006 | 248 views | 0 0 comments | 9 9 recommendations | email to a friend | print
The Telluride Town Council has recently requested the Planning and Zoning Commission to cast an eye on two land use code issues that have emerged as hot topics in town: conversion of hotels to condo-hotels and restricting use on the first floor of buildings in the town's commercial core. On Thursday, P&Z held a public hearing on the first issue and a work session to explore the latter. While no definitive ruling or iron-clad recommendations ensued, and questions seemed to outnumber answers, the general flavor of the board's discussion was decidedly laissez faire. Rather than try to regulate, in an effort to fix what may not be broken, the commissioners promoted a self-regulating, free-market policy toward both matters.

A condo-hotel, as the name signals, is a hybrid product combining characteristics of condominium private ownership with the management and amenities associated with a hotel. Typically, the owners of the condo-hotel units are entitled to hotel-type services, such as room service, housekeeping, spa facilities and recreational amenities, and can make their units available to a professionally managed rental pool. A number of factors have served to make condo-hotels an attractive option to developers and buyers alike, contributing to a dramatic surge in both conversions of existing standard hotels and new project development.

For developers, selling units helps reduce risk and aids financing while providing an accelerated return on their investment. For buyers, ownership offers what is often a lower price-point than standard condos and, in addition to benefiting from hotel amenities, they can make a return on their investment through rental income.

In Mountain Village, two existing and two new projects, the Lodge at Mountain Village and See Forever Plaza, and Lumière and the St. Regis, respectively, are structured as condo-hotels. In addition, both The Peaks Hotel and the Inn at Lost Creek are intending to convert from unified hotel ownership to individually owned units. In Telluride, The Mountainside Inn and the River Club are condo-hotels, as are the Hotel Telluride and the Columbia Hotel, both of which recently converted from a standard hotel operation. In addition, a proposed East Depot project has planning approval as a condo-hotel. Part of the impetus for local project developers and hotel operators is low occupancy and declining average daily rates that, in combination, are making hotels financially unfeasible. Those factors, in turn, seem to be the result of a changing pattern of demand by visitors who seem to want more of a residential experience than traditional hotels offer without sacrificing hotel conveniences and atmosphere.

The Telluride Master Plan favors the maintenance and development of visitor accommodations, so-called hot beds, to ensure the town's economic health and stability. The recent onset of applications for hotel conversions and new condo-hotel projects has prompted the Telluride Town Council to look into means to ensure that hot beds are not sacrificed by the new vogue. Hence the request to P&Z.

On Thursday, following two prior work sessions, Telluride Planning and Building Director Chris Hawkins, presented formal recommendations to the P&Z board to amend the Land Use Code and codify definitions and criteria for condo-hotels that would address the council's concerns. The main thrust of the recommendations was to restrict occupancy by unit owners to 30 consecutive days and 90 total days in any year; a requirement to put units into a rental pool when not being used by the owners; and, to limit kitchen facilities to small kitchenettes with no cooking appliance beyond a compact microwave oven. Elimination of both the occupancy and kitchen restrictions had been recommended by the planning commissioners at a previous work session. Hawkins said that, without such restrictions, owners would be encouraged to use their units as full-time residences, thereby negatively impacting the number of available hot beds.

The board begged to differ.

"I think we're being paranoid," offered board member Bob Biener. Biener said he felt that staff was providing "a preventative measure for something that hasn't happened yet," and commented, further, "If there is a violation, I welcome it." Biener argued that the goal was to have people here – shopping here, being entertained here, mixing and mingling here – regardless of their status as visitor or resident.

Board member Kathy Green sounded a similar note of skepticism. "I'm struggling with why we're worrying about this," Green said, pointing to current occupancy levels in town that she said were "32 percent, not 78 percent."

John Lifton-Zoline added another dissenting voice. "Do away with formalized occupancy restrictions," Lifton-Zoline urged, and called the kitchenette provision "way over restrictive."

The board did concur that condo-hotel units could not be used as permanent residences and that they should be subject to mandatory rental pool arrangements. Both of these stipulations, it was agreed, however, were in concert with what open-market forces would inspire to occur anyway. Concerning the kitchen and occupancy restrictions, the board directed Hawkins, again, to remove them from the LUC amendment and, in effect, let the market prevail.

Given its divergence from council's stated desire to regulate condo-hotels more rather than less, the board agreed to continue its hearing to its Feb. 16 meeting and to schedule a work session with council at its meeting on Jan. 31.

The same free-market sentiment informed much of the board's commentary on possible first floor office restrictions. The idea to restrict or prohibit office use at street level was initiated by Telluride Mayor John Pryor in November following discussions he had with town officials from Aspen and Vail who touted such regulation as beneficial in promoting retail vitality. The crux of the issue is that professional offices, especially real estate, crowd out retail stores, making Colorado Avenue less visitor-friendly and consumer-oriented, while simultaneously inflating rental rates demanded by landlords.

Lifton-Zoline was articulate and definitive in stating his opposition to the idea and referred to "the law of unintended consequences," that, he said, would act to create new problems, such as signage issues and a lack of second story space, without fixing a problem by bringing first floor rents down.

"I tend to think this has come out of confusion, not clarity," said Lifton-Zoline, and suggested the issue should be left "completely alone." Saying that the town already has empty space on Colorado, he suggested that there was "kind of a non-problem" with trying to ensure more space available for retail.

Kathy Green agreed and referred back to Telluride history of the late 1980s when the same first floor notion had surfaced and caused a temporary furor. Green said that, with a slight change in prevailing economic and market dynamics then, the issue dissipated and disappeared. She called the office prohibition the "crisis du jour," and warned that "we have a lot of landlords who would rather hold out" than rent their spaces at lower rates. Facetiously, but only partly, Green surfaced the idea of a "vacancy tax" on empty commercial space.

Chris Binner said he needed "to hear more from retail and business people telling us what they need." Binner suggested it would be helpful to hear from the Telluride Business Task Force recently appointed by council and charged with identifying challenges to Telluride's business viability. Of the challenges specific to retail operations, Binner said, "There's got to be more to it than just giving them more space."

Board member David Wadley voiced concern that the proposed LUC amendment "may not make a difference in rents," and that "once you put something into the LUC, it's hard to get it out." Wadley speculated that "a moratorium on T-shirt shops" might be a next logical step in the regulatory process and echoed Lifton-Zoline's counsel to leave the market to its own devices. Supporting such a verdict, it was pointed out that three existing empty retail locations on Colorado Avenue are expected to soon be filled by restaurants.

Turning to Hawkins, who had asked the board for direction, planning chairman John Micetic apologized that what Hawkins was getting was "no direction at all."

The issue is expected to be referred back to town council.
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