Hoteliers in resort locations are offering guests a stake in the business by selling individual units as condominiums. Not only is this an opportunity to own a second home in some of the countryís favorite playgrounds, promoters say, but owners can look forward to some income when the propertyís management rents the room out to guests.
Realtor Christian Charre, a senior vice president with Jones Lang LaSalle, markets hotels throughout the Americas and the Caribbean.
"If you live and work in New York and buy a residence in Florida that you use maybe two to four weeks a year," he says, "having a professional company renting the room for you the rest of the time, when it would otherwise be empty, can offset some of the expense - and you still own a piece of the beach."
It sounds like a pretty good deal, but the facts show condo-hotel consumers would be wise to check the closet for financial skeletons before signing on the dotted line.
The hotel business can be notoriously unstable - and if that room doesnít rent out, the buyer wonít see any of the income from it.
Where youíll find them
"Condo-hotels are usually upscale, full-service developments in the strongest hotel markets," says Tim Ford, vice president of operations at Lodging Econometrics, one of very few companies tracking the trend.
Some 43 condo-hotel projects containing 7,715 guest rooms are scheduled to open this year in the United States, Ford says. Another 33 projects totaling 8,271 rooms will open in 2007.
Of these, 70 percent will be built new, while 30 percent represent conversions of existing hotels. Nearly half are in Florida.
Hotels undergoing conversion run the gamut from the ultra luxurious to more modest family-style lodgings. Ancient City Hospitality Group plans to convert the Casa Del Mar Inn & Suites. The property is a Spanish-style waterfront luxury hotel in Vilano Beach near St. Augustine, Fla. Sales prices for Casa Del Marís 94 rooms, ranging from 350 to 500 square feet, start at $329,000. Boston-based Sonesta International Hotels has four condo-hotels completed or underway, all in Florida.
The driving force behind the trend is the preference bankers show to hotel developers who come to them with preconstruction contracts in hand. "A condo-hotel is a financing mechanism to shift the risk to individual owners," Charre says.
The financing structure of a condo-hotel also sets them apart from superficially similar products such as time-shares or fractional ownership, says George Kovac, a real estate attorney in the Miami office of Stearns Weaver Miller. Consumers who choose those options buy occupancy rights for specific time periods in shared properties. Buying a condo-hotel is a straight real estate deal. You donít ever have to rent it out if you donít want to, and if you do, youíre not obligated to use the on-site management company.
Owners who opt to put their rooms into the hotel inventory agree to a number of ground rules, says Charre. First, forget about calling a decorator. Your room will have to match all the others in the hotel. Second, he says, "in general, especially if itís operated by a major chain, there will be restrictions as to the amount of time an owner can use it." He says this is particularly true during peak seasons.
These terms are spelled out in the rental agreement between individual owners and management and are not negotiable, Kovac says, though "buyers always have the option of not being in the rental program."
In a typical arrangement, Charre says, "the hotel operator takes 10 percent off the top for cleaning the room, direct reservation costs and so on. Thereís a 50-50 split on the remainder between hotel and condo-hotel owner."
Owners have the same expenses as they would with a residential condo property mortgage, real estate taxes, insurance and condo association fees but the unit price is higher. "They sell at an average of $800 to $1,000 a square foot, as opposed to $400 for a residential condo," he says. "I donít know of a single property where renting the room out would cover all costs," Charre says.
As is true of all new ventures, it takes time to work out kinks that may be difficult to foresee. Before delving into this market, prospective owners should be clear about what theyíre looking for. Condo-hotels donít make good investment properties. They do make relatively affordable second-home options in some very expensive locales with an opportunity to recoup some of the expenses.