CONDO-HOTELS GO MAINSTREAM
By: Christopher Ostrowski/Hotel Journal
December 2004
NATIONAL REPORT - The evidence of a potential condo-hotel gold rush is mounting. In the past couple of months alone, several developers announced plans for new and converted condo-hotel properties. Furthermore, at the recent International Hotel/Motel & Restaurant Show in New York City, speakers at multiple financial and segment seminars were bombarded with queries specifically concerning the condo-hotel market.
According to condo-hotel experts, interest in the market has been accelerating since Sept. 11, 2001, and the hotel market downturn. While the reasons behind this rise are numerous, most industry players point to lenders willingness to finance condo-hotels over regular hotels and the stable investment characteristic of asset type as the two primary drivers.
After Sept. 11, finding financing for larger hotel properties became very difficult, so condo-hotels are a unique way to finance a property, explained Brent Howie, the president of Clearwater, Florida-based Provident Management Corp., which currently manages three condo hotels in Florida. Secondly, baby boomers our less enthralled with the stock market these days, so real estate in general is hot. Condo-hotels give you an investment in real estate, plus the cost of ownership can be reduced by entering your unit into the hotel-rental program the residence can be used as a second home. So from an investment perspective, it has its advantages, he said.
Howie also noted that before Sept. 11, condo-hotels were mostly found in South Florida and in ski resort areas in the U.S. Pre-9/11, condo-hotels were in pockets, he said. It was a niche that we specialized in, but it didn't become mainstream until the past few years when a lot of the large players like the Marriotts and the Hyatts took a stab at the condo-hotel business. Before Sept. 11, you didn't see that. It was mainly independently owned properties.
One of these independent investors is Cheeca Holdings, LLC, the new owner of the Cheeca Lodge & Spa condo-hotel in Islamorada, Florida. Jerry Johnson is the managing partner of the company and he agrees with Howie that condo-hotel has certainly become a buzz word in the industry lately.
While Johnson noted the condo-hotel concept could work for most resorts and property types, he warned if a property doesn't succeed as a standalone hotel, it certainly wouldn't succeed as a condo-hotel. A property's location and track record also are important considerations for developers, he said, adding if developers do not take these factors into account, then the sector could eventually be left with a black eye.
Condo-hotels certainly work for obtaining financing, but there still has to be another upside to them, he said. Overall, they are popular today because they work for both the developer and the end users. It's a win-win situation for both.
Since it's clear that there is plenty of money to be made on the developer, manger and residence-owner sides of the condo-hotel equation, brokers are trying to get a slice of the pie as well. One of the more prominent is the sector is Sheldon Greene and Associates and specifically, its North Miami, FL-based Condo Hotel Center division.
Condo Hotel Center's President, Joel Greene, said condo-hotels have been successful over the past few years because they fill the needs of three user markets. One of those is made up of families who travel to resorts or destinations like Disney World in Orland, FL. Another market consists of business travelers who regularly travel to the same places. The third market is made up of the investors, who don't particularly care where a condo-hotel is located; they just want the unit to generate rental fees, he said.
While Greene has seen the condo-hotel market initially rise to prominence in Florida, he noted that today, condo-hotels are popping up all over the U.S.
Just 12 months ago, most properties were in Las Vegas of Florida, he said. Now, Chicago is a major area in terms of product, and I wouldn't be surprised to see a lot more appear out west.
A few of those smaller condo-hotel developers include companies like Lake Buena Vista Developers, WCI Communities and DSI Sunrise, LLC. According to Greene and the Condo-Hotel website, Lake Buena Vista Developers is planning on building a condo-hotel called the Venetian Grand Resort in the Lake Buena Vista area of Orlando. The property will be made up of two, 16-story towers with 236 units in each tower. Fugleberg Koch Architects, Inc. is part of the design team.
Construction is set to begin in March on the Venetian Grand and is expected to conclude in early 2007, Greene reported a hotel manager h as not yet been selected, but added that five companies are in the running, including Hilton and Ritz-Carlton. Furthermore, Green revealed that Venetian Grand owners would have no designated time restriction; they will be able to stay in their residences for as many days as they desire.
Meanwhile, Green said WCI Communications is building the Regent Bal Harbour condo hotel in Bal Harbour, FL. The 26-story asset will have 116 condo units on floors two through 17. The fall of 2006 is the scheduled completion date, Greene said. He added that Regent International Hotels would be the operator.
Within the conversation area, DSI Sunrise, LLC will soon be turning the Doubletree Guest Suites, Ft. Lauderdale-Galleria in Ft. Lauderdale, FL, into a 231-key condo-hotel called Gallery One. A multi-million-dollar renovation project at the property will take about 18 months to complete, according to Edgardo Defortuna, the president and CEO of Fortune International, Gallery One's exclusive sales and marketing firm. The property's manager has not yet been selected.
With the condo-hotel market officially booming, some are starting to question whether it will eventually go bust. For example, during the presentation at the recent III/M&RS event in New York City, R. Mark Woodworth, executive managing director of PKF Consulting's Hospitality Research Group, an audience member questioned Woodworth on the future viability of condo-hotels. Woodworth said condo-hotels fall under the category of non-traditional sources of financing and that in terms of numbers of interested buyers, there are still some more rope to be pulled, but the developers may run out of rope eventually.
There are no mysteries to it, he said. Will it slow down? Sure it will. So the question is, how long will the window of opportunity stay open?
Clearly more competition is on the way and you'll get some developers that will get bad press with their projects that fail. He said. So we're being careful not to be a part of that. Some developers are passing all the risk to the owners. And those are the things that will get talked about and cause a slowdown. But for developers delivering the right product and the right price, they have a lot of opportunity.
|
