| 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.
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.
Financing
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."
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