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Condo hotels are a fairly new concept.
Here are the most often asked questions and answers.
1. In a nutshell, describe the essence of the
condo hotel concept.
Condo
hotels are usually large, high-rise, luxury hotels operated by big names
including Four Seasons, Wyndham, Ritz-Carlton, Sonesta, Starwood, Wyndham,
Hilton, Trump, Rosewood, Regent International Hotels, Clarion, Conrad Hotels,
Bulgari and Le Meridien.
Condo
hotels have condos that are sold to individual investors who may use their unit
as a vacation home whenever they like. When they're not using their unit,
owners have the option of placing it into an organized rental program. Rental
revenue, which is shared with the operator, helps defray the owner's expenses.
2. What are the benefits to the condo
hotel buyer/owner?
Owners
have a luxurious vacation home in a premier location at their disposal. Owners
who choose to place their condo hotel units in the property's rental program
receive revenue which helps defray the expenses of ownership.
Most
condo hotels have wonderful features and services that enhance their appeal to
potential buyers as well as future renters. Typical amenities are spas, health
and fitness centers, fine dining, business centers and more. Services could include
valet, concierge and housekeeping.
Condo
hotels offer hassle-free vacation home ownership. The on-site management
company takes care of all upkeep, maintenance and interaction with renters.
Owners
of condo hotel units have the right to resell their unit at any time. They keep
any profits derived from appreciation. Thus condo hotels combine vacation home
ownership with investment potential.
3.
What is the role of 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, maintains
the property and provides the services hotel guests expect, such as
housekeeping, food and beverage, and concierge.
4. Describe the typical arrangement between
the condo hotel buyer and the hotel management company?
Some
of the items spelled out in a typical owner 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, including
money for a furniture, fixture and equipment reserve.
- The financial responsibilities of the individual
condo-hotel owner, which usually include the real estate taxes, insurance,
capital improvements and debt service.
· The
financial responsibilities of the condo hotel management company, which usually
include operational expenses like housekeeping, maintenance, front office,
administrative and marketing.
· A
rental program agreement which outlines the number of days per year and notice
requirements for owners regarding use of their condo hotel units.
5.
Can condo hotel owners rent out their units themselves and keep most or all of
the revenue?
In
most condo hotel properties they can, but doing so defeats one of the prime
benefits of condo hotels which is hassle-free ownership. Most owners prefer to
have the onsite professional management company find and handle renters.
In
addition, owners are likely to receive a higher level of rental income by
participating in the property's rental program which is administered by a
recognized professional operator that can capitalize on the hotel's national
affiliation, its brand name, its sophisticated
reservation system and management expertise.
6. What are the keys to a successful
condo hotel?
The
essential ingredients to a successful condo hotel include a good location, an
attractive amenity package, a respected developer, a strong brand and good
management.
7. 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 potential security law issues can arise
out of the sale of condo hotel units. In order to avoid coming under the
scrutiny of any federal or state securities agencies, developers refrain from
setting rental revenue expectations for prospective buyers. Instead, the
developer's emphasis in the condo hotel's marketing materials and sales
presentations is always on the real estate itself.
Generally,
it is best to consider a condo hotel unit purchase to be similar to the
purchase of a second home or vacation home. Choose a desirable building in a
good location, and there is likely to be appreciation of the investment over
the years. As icing on the cake, owners who choose to participate in the rental
program can receive income from its rental to help defray ownership costs.
8. Where are most condo hotels located?
Condo
hotels are typically found in highly desirable areas, often near the ocean, theme
parks, golf courses, or in major cities.
Miami
and
Miami Beach
were the first areas to get large-scale condo hotels, and for a few years had
the most condo hotel inventory in the nation.
Now
that most of those original condo hotels are sold out and raw land is virtually
nonexistent, the trend has moved north to places like
Fort
Lauderdale,
Orlando, Daytona, Destin
and
Tampa.
Outside
of
Florida, the area with the most condo
hotels is
Las Vegas,
particularly on or near the Las Vegas Strip. Also popular are condo hotels in
thriving cities like
Chicago,
New
York and
Toronto.
Outside the
U.S.
, condo
hotels can be found in the Caribbean including resorts in the
Bahamas
, Turks and Caicos islands and
Jamaica
.
The condo hotel concept has also become popular in
Mexico
and
Costa Rica
.
In the Middle East,
Dubai
is the dominant force in the condo hotel market with many five-star resorts
under development.
9. Are all condo hotels newly built?
There
is a mix of condo hotels that are newly built from the ground up and those that
were originally hotels and have been upgraded and converted into condo hotels.
Because land in prime locations is so limited and costly, it is possible that
condo hotel conversions will eventually outpace new construction condo hotels.
10. How much does a condo hotel unit
cost?
That's
a little like asking, "How much does a car cost?" The answer, of
course, depends on which car, or which condo hotel and which unit. Factors that
can influence price are the property's location, the quality of the amenities
and the brand name. Individual condo hotel units are priced based on their
size, view, floor height, features and furnishings.
Generally
speaking, across the entire spectrum of condo hotels, prices can range from
$200,000 - $2,000,000.
11. Does it cost extra to purchase a
condo hotel using a real estate broker?
No.
The price is the same whether you use a realtor or go direct to the property.
The seller (developer) pays all realtor costs in the form of a commission. In
those cases in which no realtor is involved, the developer either keeps the
additional revenue or pays a percentage of it to the property's in-house sales
staff.
12. Where are most condo hotel buyers
from?
Buyers
come from all over the
U.S.
and from outside the
U.S.
as well. Because of the weak dollar combined with high property values
overseas, many Europeans and Latin Americans find
U.S.
property extremely appealing.
They like the idea of owning a hassle-free vacation home in a prime location in
the
U.S.
that can generate revenue when they're not using it and is likely to appreciate
in value over time.
13. Is financing available for
purchasing condo hotel units?
Financing
for condo hotel units is not difficult to find. Most lenders now are familiar
with condo hotels and recognize them as viable real estate investments. Often
the condo hotel property itself or your real estate broker can recommend
reputable lenders.
14. When is the best time to buy a condo
hotel?
The
best time to purchase a condo hotel unit is in the early stages of
pre-construction. That's when prices are at their lowest, and buyers have the
best selection of available units.
Because
of the high rate of demand, most condo hotels go through several substantial
price increases before selling out, and most do sell out long before
construction is complete. In some cases, condo hotels sell out before
construction is even begun.
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