Condos Go Cabanas: Developers Sell Poolside Huts as Upgrades

Cabanas are the latest hot extra at condominium projects.
By: Cheryl Lu-Lien Tan: The Wall Street Journal Online
Ranging in space from about 140 to 500 square feet, they may come equipped with bathrooms or even a tiny kitchen and can cost as much as $500,000.

When Bruce Tucker moves into his new $400,000 digs at the Ocean Marine Yacht Club in Hallandale Beach, Fla., the draw won't be the high-end appliances, the marble baths or even the balconies with ocean views.

Instead, the 33-year-old software developer plans to spend a lot of time inside his own private cabana next to the complex's pool, where he and his buddies will gather around a 50-inch plasma television set and toss back beers. The cabana's price: $43,000 - or nearly 11% of the cost of his two-bedroom apartment - and that doesn't include the dark wood floors, cushy sofa and bar that he plans to have his decorator install.

Cabanas, prime real estate for the hip set in boutique hotels such as the Delano in Miami and the W in Los Angeles, are the latest hot extra at condominium projects. While the hotel versions are rented out for a few hours or a day, and tend to be made of flimsy fabric or wood, the new condo varieties are deeded to owners like the condo apartments themselves and usually constructed of sturdy materials like concrete. Ranging in space from about 140 to 500 square feet, they may come equipped with bathrooms or even a tiny kitchen. Some cost as much as $500,000, and those with better views or more prominent locations command the highest prices.

"It's sort of like having a prime parking space," says Steven Zelman, president of Home of Fine Decorators, a Hallandale Beach interior-design company that just completed a $200,000 renovation of a Miami condo cabana. "It's about convenience and stature - the guy who has that spot right in front, he wants everyone to see his car."

High Markups

In addition to providing a new selling point, cabanas offer developers another plus: added profit. The poolside units typically occupy space that would have been filled by such nonrevenue-generators as deck chairs or shrubbery. Because the cabanas often are basic shells described as "decorator ready" - blank slates without flooring, cabinetry or appliances - they don't cost much to build. Lee Hodges, project manager for Related Group of Florida, estimates it cost his company a bit more than $16,000 to erect each of the 26 beachfront cabanas at the Beach Club in Hallandale Beach yet it sold them for $100,000 apiece - a far higher markup than that of most condos.

The move to build pricey cabanas comes amid early signs of a slowdown in the booming real-estate market. In the last 10 years, condo sales have taken off as more baby boomers have downsized, purchased second homes or sought out apartments as investments. Last year, about 820,000 condos changed hands in the U.S., accounting for 12% of all residential real-estate transactions, according to the National Association of Realtors. That's up from 8.8% of the market in 1994, when 342,000 condos were sold. Some real-estate experts question whether the pace can keep up.

So far, condo buyers have been snapping up cabanas. Turnberry Associates' Ocean Colony in Miami sold 16 of its 19 beachside cabanas almost immediately when they first went on sale in January 2003 - at $500,000 a pop. (Ocean Colony condos themselves go for about $1.8 million to $5.5 million.) Only one cabana remains - and it's being reserved for the buyer of the largest apartment in the development. Jim Cohen, Turnberry's vice president of sales, says he has 37 residents on a waiting list, should any of the cabanas come back on the market or the remaining one go unsold.

"They're paying half a million for 250 square feet," Mr. Cohen says. "Do the math - I should have done the whole project in cabanas."

Eric and Helena Fordin say they didn't think twice about buying a cabana when they bought a $368,000 apartment at the Beach Club. "It was absolutely worth every penny," says Ms. Fordin, an events coordinator. "The blinds open up to have a full view of the ocean, so even when it's rainy we'll sit on the couch and watch a movie - and we're still on the beach."

Cabana Envy

Demand is so robust that another Beach Club resident tried to buy the Fordins' cabana for several times the $100,000 the couple had just paid. "Right when I moved in, someone who was closing on their unit offered me $200,000," says Mr. Fordin, a real estate developer. "I said, 'No, thank you,' and then they said, 'Would you take $300,000? We can do an all-cash deal tomorrow.'" The couple turned down that offer as well.

Realtor Silvia Jokalova says she's been envious of cabana people since she moved to the Beach Club six weeks ago. "I can see myself having barbecues down there, throwing parties for friends and family," she says. She has put her name on a waiting list and even is considering announcing her desire to buy one at an upcoming condo board meeting.

Yet cabana ownership comes with restrictions. Many condo associations have strict rules, such as forbidding people from staying in them overnight. "We didn't want people buying them for their maids or having their mother come live there," says Turnberry's Mr. Cohen. Owners who sell their apartments typically are required to sell their cabanas, too. Ocean Colony also lists guidelines on cabana neatness: Pathways leading up to cabana entrances have to be clutter-free and spaces that can be seen from the outside should be kept tidy, too. Condo associations can issue a fine or reprimand if a cabana owner flouts the rules.

Developers say they are confident their cabanas will continue to sell because of the strong demand for waterside amenities, particularly in Florida. "A big part of why you're buying here is the pool or the beach," says James Helman, executive vice president of Tarragon's Southern Division, which is building 15 cabanas at its Las Olas River House project in Fort Lauderdale. The 250- to 300-square-foot cabanas are priced from $175,000 to $200,000, and the five the company has put on the market so far sold right away.

Fifield Realty hasn't even begun selling the 28 cabanas at its Allure Las Vegas project, but it says it already has at least 50 apartment owners on the waiting list for the $30,000-to-$50,000 poolside structures. "A lot of it is image," says Rick Cavenaugh, Fifield's president. "If you're going to live your life down by the pool, you want to be there, you want people to see you there."
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