The rolling hills of the North Castle Drive development overlook downtown Armonk.
Hybrid Hotel and Residential Area Proposed for Former IBM Property
February 17, 2018 Maddd Madonna Armonk, LLC presented a conceptual site plan to develop two parcels of the 32-acre property at One North Castle Drive, formerly owned and subdivided by IBM, at the North Castle Town Board’s work session on February 14. Attorney Kory Salomone presented the preliminary plan for the development. Salomone says the current Office/Business/Hotel zoning for the property now allows for about 300 hotel rooms.
Since the late 1700’s, the estate of rolling hills just southeast of downtown Armonk has changed hands between some of North Castle’s most respected and well known families: the Cornells, Birdsalls, Brundages, and the Agnews, who were apple farmers on what was last known as Wenga Farm before the IBM Corporation purchased the property in 1955. After years of planning and developing, IBM moved into its 432-acre world headquarters in Armonk in 1964. Forty-five years later, during a North Castle Town Board meeting in 2010, IBM’s application for a subdivision of 32 acres was approved. At that meeting, IBM said its future intention was to have a hotel built there.
Frank Madonna Jr. says he worked on purchasing the 32-acre property from IBM for over two years. He closed the deal for one of North Castle’s most sought-after commercial properties in August 2017. Madonna says part of IBM’s contractual obligation and due diligence license agreement was that he provide a development plan that IBM would approve. Madonna says that IBM has approved the preliminary plans for a hotel with apartments and a townhouse community.
An in-depth analysis of four possible options to build a hotel on six of the 32 acres was presented by Jonathan Falik, who is Maddd Madonna’s North Castle Drive Hospitality, Strategic and Capital Marketing Advisor. Falik says the most viable option for the six acres is a hybrid boutique hotel of 97 hotel rooms with amenities, plus two more stories, and a penthouse story, above the hotel for an additional 69 rental apartments.
Apartments above the hotel were proposed as follows:
44 one-bedroom apartments of 800 to 1,000 square feet each, of which four would be Affirmatively Furthering Fair Housing (AFFH units),
15 two-bedroom apartments of 950 to 1400 square feet each, of which two would be AFFH units,
and ten three-bedroom apartments, which would be the AFFH units required for the building of 94 townhouses on the remaining 26-acres.
The analysis and feasibility approach for the hotel were reviewed by Falik, who is the founder and CEO of JF Capital Advisors. He says he has overseen billions of dollars worth of hospitality transactions. Although North Castle’s Comprehensive Plan suggests that “North Castle can accommodate another three hundred hotel rooms, we don’t think that is accurately based on actual financial feasibility analysis.” Falik’s review of data from a 250-page report included evaluations of financial models to build and manage four different types of hotels at One North Castle Drive.
The first of the four models reviewed was a full-service hotel of 225,000 square feet, about the size of Rye’s 300-room Hilton Hotel.
The next option considered was a boutique or independent service hotel of about 85,000 square feet, such as the 120-room J House in Greenwich, CT.
The third option was a smaller limited service hotel of about 80,000 square feet, such the 140-room La Quinta Inn & Suites in Armonk.
The last option model presented was a hybrid scenario, a boutique hotel with rental apartments in a 165,000 square foot building.
The development cost of the hybrid proposal is about $50 million, says Falik. The amenities of the hotel would also be the amenities for the apartments, with the lobby, fitness center, and pool used by both apartment residents and hotel guests in the same building. “The renters of those 69 apartments will end up driving more profitability into the hotel because of the restaurant and bar [use] downstairs, the pool, and the pool grill which are literally in their building. The apartments in the building are the driver of the profitability for the hotel, otherwise it would be a break even or not profitable at all. In terms of food and beverage revenue, apartment dwellers will end up getting their coffee in the morning, they will have breakfast and entertain friends, lounging at the pool,” says Falik. He said this is the only scenario that is feasible or financeable. You end up with an exit price for the hotel of $55 million, with a development cost of $50 million. “If we didn’t have the apartments, essentially subsidizing or fueling the food and beverage on some of the shared costs, the profitability on the boutique component would be a push.” He also said the development cost of the apartments is $23 million, with 70% of the construction financed, with a sale price of $32 million. “There is a $10 million profit on the apartments and that’s what juices the terms to make the entire project feasible,” concluded Falik.
Gregg DeAngelis, an architect in Mamaroneck, says the hotel will sit at the lowest portion of the 32 acres. The building will be a slightly curved shaped, with a long narrow corridor for a 165,000 square foot building above grade. The 97 hotel rooms will range from 300 to 400 square feet. The hotel’s amenities for hotel guest and residents will include banquet rooms and conference centers, business and fitness centers, an outdoor pool situated on the roof top of the second floor with a bar and grill, a restaurant, and a cafe and lounge which will be open for the community to utilize as well.
Above the hotel’s two floors will be three stories with 69 rental apartments. The apartments will consist of 40 one-bedroom apartments, 13 two-bedroom apartments, and 16 AFFH units. These AFFH units will meet the AFFH requirements for the two developments for both projects on the 32 acres.
The high-end boutique hotel will occupy the first two floors, with terraces on the side of the hotel that will overlook the town’s Community Park. Decades ago, during Jack Lombardi’s tenure as North Castle’s supervisor, the IBM Corporation donated the land of Community Park to North Castle.
Both the hotel and townhouse areas will be accessed by a shared driveway. The five-story hotel/apartment building will have a two-level underground parking garage with 300 to 320 parking spaces. In addition there will be another 60 to 70 on-grade parking spaces in front of the hotel. There is also a possibility that the hotel parking could provide needed parking for certain town events such as the 8,000 plus visitors who attend the two-day Armonk Outdoor Art Show held annually in the Fall.
North Castle’s Comprehensive Plan offers guidance as to what would work on the property, says Patrick Cleary, of Cleary Consulting, the Environmental Planner for the project. To make the site economically viable, the need to broaden North Castle’s housing opportunities was clearly established in the Comprehensive Plan. “The provision of rental apartments and townhouses had guided our approach to the development of the site, recognizing that a hotel itself would not support the property economically,” says Cleary.
Salomone said an application will be submitted for an amendment to the Office/Business/Hotel (OBH) zoning district for the mixed use of the hotel and apartments. The OHB district is exclusive to this property because this is the only North Castle property that qualifies for the OHB zone district.
The applicant will submit an application to rezone the 26-acres of townhouses as a residential multi-family (RMF A) zoning district, like the zoning for the property’s closest residential district, the townhouse complexes of Cider Mill, Whippoorwill Hills and Whippoorwill Ridge.
The topography of the project shows that the townhouses on 26 acres would be terraced up and down the hillside, with the highest point at 510 feet. The concept for the 26-acre lot is designed as a gated community with 94 three-bedroom and three-bath townhouses, each with two car garages and basements. The preliminary plan for North Castle Drive shows 94 apartments as townhouses in semi-attached clusters of buildings situated in several rows of two to five two-story townhouses, surrounded by pedestrian walk areas. The townhouses will average about 2,700 square feet each.
Falik says that the rule of thumb which developers have used for building hotels is to try to achieve an average daily room rate of $150. This suggests that you cannot spend more than $150,000 to build each room. Today, this does not come close to working, even if you apply a zero cost to the land purchase. Financial data shows that the development cost to build a full service hotel of 300 rooms, including full construction costs, design fees, franchise fees, and management fees would be $335,000 per key [room], or over $100 million. This would require at least $335 as an average rate for a hotel room for this financial model to make sense. Falik says that based on today’s needs and demands, most of the existing hotels in Westchester County could not be replicated.
The concept presented at the work session is an opportunity for the Town Board to begin evaluating the suitability of the development of the property, concluded Cleary. Cleary says Maddd Madonna Armonk anticipates that the proposed development is manageable, and that its impact on the infrastructure, schools, the community and traffic will not be adverse. When the full submission of the plan is made in the next month or so, a comprehensive environmental evaluation of the property will be performed. Cleary says there will be minimal impact to others in the community because there are no adjacent residential neighborhoods.
Frank Madonna Jr., a principal of Maddd Madonna Armonk, LLC., said the project will accomplish many of the goals of North Castle’s Comprehensive Plan by bringing in types of housing that we don’t have in the area. He estimates that the 94 townhouses will bring in approximately $2.7 to $2.8 million of yearly tax revenue, with almost $2 million dollars in yearly tax revenue for the school district, without impacting the district whatsoever, "since the entire project will bring in about 60 to 70 school children.” He says this is especially true because “Byram Hills School District’s enrollment is 292 students below capacity.” Madonna adds that the capital contributions related to the project will be in excess of one million dollars. The subsidies will include a contribution to Sewer District No. 2 in downtown Armonk. “We’re looking to make substantial contributions to Sewer District No. 2 for the future upgrade of the plant, which is long overdue.”
Salomone said an additional financial advantage to North Castle is that the now vacant 32 acres of land will generate 3% hotel occupancy tax, as well as fees from the building process.
“The analytics are fascinating,” says Michael Schiliro, North Castle’s Town Supervisor. The town code requires AFFH units on site. “We will have to look at the choice of where to put the AFFH units.” He added, “Do you put the required 10% of the AFFH units for the townhouses and the mixed-use-building on both sites?”
“But this is one development with two lots, and we have to talk through what is really best,” says Schiliro. “On the surface, it looks like a very promising project. Personally, I have wanted another hotel in town for about nine years since I was part of the town board that subdivided [IBM’s] property for this. It’s nice to see that it is finally going to happen. We’re excited to keep the ball moving.”
Madonna says the preliminary plan for the project was well received because this is the best scenario on this property for needed housing.