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Do condo-hotels make good investments?
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"We currently operate two in the Miami area -- the Sonesta Hotel Intervista Coconut Grove and the Trump International Sunny Isles Beach." A Sonesta property in Key Biscayne, Fla., will be closed this August and redeveloped as a combination condo-hotel and individual residences, she says, and a 900-unit condo-hotel, Sonesta Orlando Tierra del Sol, is planned.

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Jerrold Krystoff, principal and CEO of Hospitality Development Group, says InterContinental Resort & Residences will manage Villas at Palazzo del Lago, a condo-hotel his company plans to build near Disney World in Orlando.

The resort, he says, will offer 585 two- and three-bedroom guest suites within the hotel starting at just over $400,000, as well as separate residential condos starting at $300,000.

"If you look at the new hotel projects coming online," Krystoff says, "most of them are condo. The lenders like it."

In fact, says Charre, 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," he says.

Although isolated incidences of condo-hotels have been popping up for a few decades, the concept has begun to gather momentum only in the past couple of years. As a result, says George Kovac, a real estate attorney in the Miami office of Stearns Weaver Miller, there's still a lot of confusion about them in the marketplace, starting with what, exactly, a condo-hotel is -- and is not.

"There are several related products," he says. "First there were people who wanted a condo lifestyle, but with hotel-like amenities."

Condo towers built in tandem with hotels fulfill that demand, he says, but "that's quite a different product from buying single guestrooms."

The financing structure of a condo-hotel also sets them apart from superficially similar products such as time shares or fractional ownership, Kovac says. 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 don't ever have to rent it out if you don't want to, and if you do, you're not obligated to use the on-site management company.

The rental deal
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 it's 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 -- a constraint that could benefit the owner financially, since that's when the hotel is most likely to be booked solid at premium rates.

Sometimes, Charre says, local city ordinances restrict the amount of time an owner can occupy the unit.

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. There's a 50-50 split on the remainder between hotel and condo-hotel owner."

Next: "The jury is still out on a number of legal issues. ..."
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