11/22/08

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Montauk: Surf Lodge's spillover effect

Joan Hegner of Corcoran said the Surf Lodge could draw buyers from other parts of the Hamptons.

The phenomenon that is the Surf Lodge — a new hotel, restaurant and bar that is bringing young professionals to the South Fork's easternmost enclave — could prove to be a boon for the Montauk real estate market.

Some East End brokers say the venue, which was written up on the front page of the New York Times' Sunday Styles section last month, is bringing a new generation of prospective entrepreneurs and summer residents to Montauk, a community that prides itself on being more rustic, laid back and affordable than its neighbors to the west.

Backed by a group of five investors and transformed into an upscale space with chef Sam Talbot of reality TV fame heading up the kitchen, the Surf Lodge has already established a reputation as this summer's Hamptons seen-and-be-seen hangout.

But now, many brokers are wondering what spillover effect this trendy new nightspot will have on Montauk real estate values. Some say new interest from buyers could help blunt the impact of the downturn in the market.

"The success they're having this dramatically, this early on, is going to attract new investors — no question about it," said Joan Hegner, a senior vice president at Corcoran who works out of the brokerage firm's Montauk office.

A residential rental broker for two of the hotel's investors, Hegner said that she has already been approached by Surf Lodge patrons who have expressed interest in buying in Montauk.

She said sales at the highest and lowest ends of the residential market in Montauk — properties being sold for more than $5 million and those with mid- to high-six-figure price tags, respectively — have been strong. However, sales of homes listed at between $1 and $5 million, and especially those in the $1 to $2 million range, have suffered in the past year amid the downturn in the housing market.

"There is much more inventory than there was last year, and there have been a lot of price readjustments," she said.

She noted that the current climate could very well prompt more residents of ritzier Hamptons communities to come to Montauk in search of housing deals. In addition to the softening market in the Hamptons, prices in Montauk tend to be significantly lower.

"It's an exciting time," said Kathleen G. Beckmann, a veteran real estate broker who owns an eponymous Montauk-based firm. "Surf Lodge's club atmosphere is bringing a new clientele to town: younger people who are finding and falling in love with Montauk. Some of them will become buyers."

A partner in Surf Lodge, Steven Kamali, predicted that the Surf Lodge would also bring to Montauk "an uptick in commercial sales and retail development." He added, "Any time you create something unique, you inspire others to follow suit."

Kamali's fellow investors are Robert McKinley, Jamie Mulholland, Jayma Cardosa and Steve Kasuba; these backers are also behind the Cain and GoldBar clubs in Manhattan.

Retail leases in Montauk range from $25 to $50 square foot, according to brokers familiar with the commercial landscape there. By contrast, retail space can exceed $200 a square foot in the prime areas of East Hampton village, said Lee Minetree, a vice president at Corcoran.

The prospect of growth in Montauk's commercial sector, which already has a Calypso and several other high-end boutiques, has elicited skepticism from some locals who worry that their relatively tranquil community — there are no stoplights, or Starbucks — will go the way of flashier East End areas, explained Lexa DiSpirito, a real estate broker and a lifelong Montauk resident.

"Surf Lodge is attracting a different crowd," she said. "Different isn't bad — as long as people come here and appreciate it, and they don't chew it up."

DiSpirito, who works for the Tuma Agency —the real estate firm started by her father in 1952 — said the publicity that the Surf Lodge has brought to Montauk "comes at a very good time," given the downturn in the housing market. She said that Montauk's increasingly stylish status could help blunt the impact of the softening real estate market there.

"It's nice to see that there is new energy coming in, that Montauk is no longer the red-headed stepchild of the Hamptons," she said.

To be sure, the Surf Lodge is neither the pioneering nor the sole force that is transforming Montauk's image. In recent years, several other tired motel properties have been renovated and reopened as residences or chic hotel lodging: A portion of the former Panoramic View Hotel has been converted into two- to five-bedroom residences, with prices starting in the $2 million range; and the Shepherd's Neck Inn has been remade as the Solé East, a 67-room hotel with rates ranging from $240 to $600 a night.

Meanwhile Andrew Farkas, the department store scion who purchased the Montauk Yacht Club for $34 million in 2007, has already spent million of dollars refurbishing the 35-acre resort and marina. Also last year, a 5.6-acre portion of artist Andy Warhol's estate sold for $27 million, a record-breaking price for a Montauk residence, according to brokers.

The hype surrounding Surf Lodge and other developments in Montauk has been good for business, said an owner and the general manager of Solé East, David Ceva.

"It's bringing a lot of people who didn't even know about Montauk," said Ceva, who predicted that the hamlet's high-end hospitality industry would continue to grow in the coming years.