Introduction
First we had the Four Seasons build a 277-room hotel with 142 condominiums at 765 Market St. Marketing started at the height of the dot-com era (January 2000), continued through the bust, and the final sale took place 60+ months later in May 2005. Though initial market timing was a bit challenging, the project has since been well received.

Then we had the St. Regis build a 260-room hotel at the corner of Mission and 3rd St., along with 102 condominiums. In my September 2004 issue of Pulse of the Market© (no. 29), entitled “How Deep is the Market?”, I forecast that it would take four years to sell out at an average price of $2.5 million. Guess what? The hotel opened in November 2005, and as of March 2006 they are all sold (in approximately 18 months), with the exception of a handful of units. Even when you have your finger on the pulse of the market, sometimes it can skip a few beats.

Now here comes the Ritz-Carlton with a different, and quite interesting, marketing concept: condominiums, deeded fractional unit ownerships and no hotel. While Ritz-Carlton has succeeded with this concept at four seasonal resort locations, San Francisco is the first attempt within an urban environment.

Cesar Ritz: A Bit of History
Cesar Ritz was born in Niederwald, Switzerland in 1850. He started out learning the restaurant business at the finest restaurant in Paris, the Voisin, which closed during the Siege of Paris in 1870. Ritz was then 20 years old. He then worked at resort hotels throughout Europe during the period 1877-1887, including managing the Grand Hotel in Monte Carlo where he met the great chef Auguste Escoffier, the father of modern French cooking.

With a loan from Marnier La Postelle, inventor of the liqueur Grande Marnier, Ritz bought a mansion in Paris and developed the 210-room Paris Ritz, which opened in 1898. By 1902 Ritz held a controlling interest in nine restaurants and hotels in Europe, including the Carlton in London. He suffered a nervous breakdown in 1902, and died 16 years later in 1918. This heritage has contributed to the Ritz name becoming synonymous with classy, and created the standard by which other hotels are judged.

Ritz-Carlton
The Ritz-Carlton Investing Company was established by Albert Keller, who bought the rights to the Ritz-Carlton name. In conjunction with a Boston developer, Edward Wyner, the Ritz-Carlton-Boston was opened in 1927. Wyner died in 1961 and the rights to the name were sold to William B. Johnson, who established The Ritz-Carlton Hotel Company, which brings us to The Ritz-Carlton Club and its newest location at 690 Market St. in San Francisco. The Ritz-Carlton Club is a division of the Ritz-Carlton Hotel Company, which has 67 hotels worldwide, including four completed residence clubs and another four in various stages of development.

690 Market Street
Ritz-Carlton has joined with local developer Jim Hunter (The Hunter Group), the owner of 690 Market St. (corner of Kearny). Built in 1890 and home to the San Francisco Chronicle until 1924 when it became an office building, this 16-story Romanesque-style building, designed by Chicago architect Daniel Burnham of Burnham & Root, was the city’s first steel-framed skyscraper. It survived the 1906 earthquake. The architectural firm also designed the Flatiron Building in New York City, as well as Washington DC’s Union Station, the Marshall Field & Co. department store in Chicago and many others. See the original building, and the artist’s rendering of the structure, which now under construction at 690 Market St, at the end of this Pulse.

The Fractional Ownership Concept
While the time-share concept appeals to vacation buyers, the fractional concept has been designed for second-home buyers. Time-sharing allows a family to enjoy vacations at different locations at different times. Fractional ownership is about paying for actual time used. (Fractional usage has become very popular in the corporate jet industry – same concept).

Instead of spending, say, $2 million, for a second home and then use it only a (small) portion of the year, why not scatter your discretionary investment dollars in different locations and match expenditures with usage? For $200,000-$300,000+, you can get a deeded interest for three weeks in San Francisco and enjoy the attendant right to spend some of the entitled time at other Ritz-Carlton clubs, and/or purchase additional days and nights at a significantly reduced rate. Better still for Ritz-Carlton, you can go ahead and spend $2 million, but spread it among a number of clubs throughout the world.

Ritz-Carlton San Francisco
There are 52 condominiums (called private residences) on the top 12 floors of the renovated structure at 690 Market St. (see developer’s rendering below). There are one-, two- and three-bedroom units, including four  penthouses on the top two floors, and prices, though not set yet, will no doubt be $1,000+ per sq. ft. These 52 units are condominiums, like others in the City, but with the Ritz-Carlton panache.

On the lower 11 floors, there are 49 units (averaging four to a floor) which are being sold as 1/12th deeded interests, entitling the owner to a minimum usage of 21 days each year – but not necessarily in the specific unit actually owned. It probably doesn’t matter that you stay in your actual unit; after all, it’s the Ritz, and they will take care of you wherever you are.

While this can be viewed as a typical pied a terre in San Francisco, if you reside in the City, instead of having visiting friends or family stay with you, you can put them up at the “guest cottage” in the Ritz. Then you can take advantage of other amenities when you travel.

When you multiply three weeks (21 days) x 12 fractions, the result is 36 weeks, which leaves a balance of 16 weeks per year, which may be used by local club members or members from other clubs. One of the benefits of this concept is that a fractional owner has unlimited usage of these units at any Ritz-Carlton Club for about $150.00+ per night; and instead of getting a 300 sq. ft. hotel room, they'll enjoy a 1,000+ sq. ft. condominium! These units come with high-touch service, including a concierge and well-trained staff, valet parking, preferred access to other Ritz-Carlton Clubs and 30% off the rack rate of Ritz-Carlton Hotels worldwide.

Summing Up
Unlike the Four Seasons and St. Regis developments, there is no traditional hotel at the Ritz: no public meeting rooms, restaurant, bar, etc. – though there will be a fitness facility. At the Four Seasons and St. Regis, the first 20 or so floors are devoted to traditional hotels rooms, and the next 20+ stories are condominiums – some of which have pretty decent views. Though I haven’t visited the site, it is unlikely that comparable views exist at the Ritz-Carlton, so it will be interesting to see who are the full residence buyers. They will most likely be those who favor the Ritz-Carlton touch over San Francisco views.

The Ritz-Carlton San Francisco is scheduled for occupancy in November 2007 – the same time that the first tower at 300 Spear St. is due to be available for occupancy. At 300 Spear you will have a 35-story tower, and some of the units will have knockout Bay views. Is this a different buyer than for the Ritz-Carlton? Stay tuned. If you would like an introduction to the folks at Ritz-Carlton, just let me know.

Developer’s conceptual rendering of 690 Market St. (at Kearny between Third & New Montgomery Streets).

Historic image courtesy of the San Francisco Center, San Francisco Public Library. Historic photo by T.E. Hecht.