Condo-hotels are a fairly new concept. Here are the 10 most often asked questions and answers.
In a nutshell, describe the essence of the condo-hotel concept.
Condo-hotel buildings are usually large, high-rise, luxury hotels operated by big names including Four Seasons, Ritz-Carlton, Sonesta, Starwood, Hilton, Rosewood, Regent International Hotels, Clarion, Conrad Hotels, Bulgari and Le Meridien. Each condo-hotel unit is sold to individual investors who may use their unit for a specified amount of time, and when not used the investor has the option of placing it into an organized rental program. Rental revenue is shared with the operator and helps defray the unit owner's expenses.
Sometimes condo-hotels are called "hybrid" because they combine an investment with second home or vacation home property features.
What are the benefits to the condo-hotel buyer?
These types of developments can offer enhanced financial returns when owners choose to place their units in a rental program. The revenue from being in an organized rental program may help defray the owner's expenses. During periods in which owners are not utilizing their units, the hotel operator manages the condo-hotel.
Unit owners are more likely to receive a higher level of rental income by being in a rental program with a recognized professional operator because of the hotel's national affiliation, its reservation system, brand recognition, and management expertise.
The original developer intends to sell the units; thus, features are generally added to enhance the appeal of units to potential buyers. This could include hotel features likes spas, health and fitness centers, business centers and other amenities.
Many potential owners shun purchasing a condominium because they may not have as much use of it as they would like. As a result, the absentee unit owners shutter their units for extended periods. Although some unit owners seek to rent their apartments through local realtors, many do not, either because of the effort involved or the fear that the unit will not be available when they want to use it. The condo-hotel is suggested as the solution to this dilemma, giving unit owners a convenient way of managing the rental, yet insuring that the unit can be available when needed by the owner.
As an added incentive, many developments offer an expanded array of hotel services that are available to owners when they are in residence. This could include valet, concierge and maid service.
What are the benefits to the condo-hotel operator?
The operator of the rental program, in exchange for a share of the revenue, markets the units as a hotel, takes reservations, operates the front desk, and provides the services hotel guests expect, such as housekeeping, food and beverage, and concierge.
Describe the typical arrangement between the condo-hotel buyer and the hotel management company?
Some of the items spelled out in the agreement include:
The amount of revenue the condo-hotel owner will receive.
The amount of revenue the hotel management company will receive.
Typical deductions before each of the parties receives their share. This would include money for a furniture fixture and equipment reserve.
Who will pay for real estate taxes, insurance, capital improvements and debt service. It will usually be the individual condo-hotel owner.
Who will pay for operating expenses such as housekeeping, front office, administrative and general, and marketing. These are usually paid by the operator. Frequently, travel agents and credit card commissions are also split between the condo-hotel owner and the operator.
There may be a usage agreement which will outline the frequency and notice requirements when owners want to use their condo-hotel units.
Who has the responsibility for the maintenance and repair of common space?
The responsibility is allocated among condo-hotel unit owners based on their pro rata share. Charges to the owner typically cover reserves, common area maintenance, property insurance and utility expenses. The hotel operator pays for its costs of operations; that is, salaries and other direct hotel expenses.
What are the keys to a successful condo-hotel?
The essential ingredients usually include a good location, an attractive amenity package, a respected developer, a strong flag and good management.
Are developers willing to guarantee the rental of the condo-hotel units when not used by the owners?
No they are not. Developers are aware that there are potential security law issues that may arise out of the sale of condo-hotel units. In order to avoid coming under the scrutiny of any federal or state securities agencies, owners usually take several simple preventative measures. These include:
Refraining from setting rental revenue expectations for prospective buyers. Instead, the developer's emphasis is on the real estate itself as per the marketing material and presentations. The developers avoid raising purchaser's investment expectations. Providing anticipated financial information may give the project the appearance of a security.
Therefore, it is best to consider your purchase to be similar to the purchase of a second home or vacation home. If you buy right and choose a desirable building in a good location, there is likely to be appreciation of your investment over the years. Then, as icing on the cake, if you choose not to use your unit, you can receive income from its rental to help defray your ownership costs.
Instituting a third-party agent to oversee the sales of condo-hotel owners to either rent their units to third parties or not rent their units at all.
Allowing owners to appoint a rental management company of their own to manage the rental of their unit, although selecting a manager other than the condo-hotel's management company would likely be impractical in attempting to effectively maximize rental income.
Where are condo-hotels usually found?
They are traditionally found in seasonal resort areas. South Florida is a popular condo-hotel destination, and, in fact, has the greatest selection of inventory in the country. Other areas of Florida are also starting to get condo hotel resorts including Winter Park and Orlando in Central Florida and Sandestin in the Panhandle.
Where are the buyers mostly from?
The condo-hotel concept has appealed to Latin Americans (Colombia, Venezuela, Brazil and Argentina), European and North American buyers. Latins know condo-hotels by the term "apartotel."
Have South Florida condo-hotels been successful?
Four years ago, Latin Americans flocked to buy units in the city's first condo-hotel, the 172-unit Mutiny in Coconut Grove. The demand was so strong that the developer built a second building, the 224-unit Mutiny Park, managed by Sonesta International Hotels as a luxury resort.
Another success story is The Ritz-Carlton Key Biscayne. Located five miles from Downtown Miami, it opened in mid-2000. Its 188 condo-hotel units in the 13-story beachfront resort and spa sold out a year before completion. The condo-hotel units in The Ritz Carlton have steadily increased in value each year.
Today, there are more than 20 condo-hotel buildings in South Florida, with more on the way.
