Korman Makes a Quick Switch on Plans for 8500 Sunset Blvd.

Faced with a West Hollywood law barring short-term stays in apartment buildings, Korman Communities apparently has changed its plans for the condominium towers it recently acquired at 8500 Sunset Blvd.

In a press release yesterday, Korman announced that the 80 units in the east tower on the site will be leased as apartments rather than short-term corporate rentals, as it originally had announced. The 110 units in the west tower, which Korman also had planned to use for short-term corporate rentals, now will be available only for rentals of one month or more.

The units in the two buildings at that location were being marketed by CIM Group as condominiums until recently, when CIM sold them to Korman and the Brookfield Property Group. The acquisition price is unknown, but the value of the property has been estimated at $250 million. Korman said then that it planned to turn the buildings into one of its AKA hotels. Korman operates 11 such hotels, which offer extended stays to corporate executives in locations such as Beverly Hills, where rooms rent for a minimum of one week for as much as $1,000 a night, and rentals of only one night in other locations in New York, London, Philadelphia

However corporate rentals have been banned in West Hollywood, part of a move by the City Council to prevent housing for residents from being taken off the market. Rental of a residential unit for fewer than 31 days is a violation of the city’s ban on short-term rentals such as those booked through Airbnb.

It’s likely that Korman’s plan to rent rooms for one month would still require approval by City Hall because it would effectively be operating the west tower as a hotel. John Keho, the city’s assistant community development director, said the city is in discussion with Korman about the plan, which wouldn’t comply with the building’s designation as a residential property.

In the press release announcing its new plan, AKA President Larry Korman said “Our intention with this acquisition is to operate annual luxury apartments in one tower and Korman Communities’ industry leading furnished residences available for stays one month or longer in the other tower. We are committed to working collaboratively with the City of West Hollywood and abiding by all local laws.”

Turning the building into a hotel would be controversial, given concerns among owners and managers of the city’s existing hotels about the number of new hotels already coming into the market. With the recently completed but not yet opened “1” hotel (formerly the James), the city now has 19 hotels with 2,346 hotel rooms. New hotels approved by the city or already under construction such as the Edition and the Kimpton La Peer would add another 447 units. Other planned projects that haven’t received final approval would add 496 rooms, bring the total to 3,575 rooms. Those projects include 8950 Sunset, Robertson Lane and 7811 Santa Monica Blvd.

A study of West Hollywood’s thriving hotel market by CBRE Hotels, an industry consulting firm, has predicted a major impact on room rates if the seven hotels under construction, those permitted but not yet under construction and those in the existing permit process are completed. CBRE projects the current 85% occupancy rate would fall to 68% by 2020. The study predicts that by 2026 that rate will have risen only to 80%.

The hotel room occupancy tax is the largest single source of revenue for the City of West Hollywood. The tax is 15.5%, with 3% of that allocated to the city’s marketing and tourism bureau. The CBRE study found that the projected increase in hotel rooms would not reduce that revenue. The city’s 2016/17 fiscal year budget projects $23 million in hotel tax revenue. The CBRE study estimates that with the new hotels it will reach $36.8 million in the 2020/21 fiscal year.