Condotel Lagrande same with Condotel or Condo-Hotel. A condo hotel, also known as a hotel-condo or a Condotel, is a building used as both a condominium and a hotel. Condo hotels are typically high-rise buildings developed and operated as luxury hotels, usually in major cities and resorts. These hotels have condominium units which allow someone to own a full-service vacation home. When they are not using this home, they can leverage the marketing and management done by the hotel chain to rent and manage the condo unit as it would any other hotel room.
How do the condotels work?
As the name implies, condotels are hybrid investments with both residential and hotel components. It is an unconventional business form.
Like other real estate purchases, the buyer owns the condo unit and is
responsible for the property taxes, insurance and maintenance/homeowner
association fees. There are a variety of different products on the market with an array of options. Some condotels are arranged like traditional hotels with primary residences that are not rented to the public. Some have no rooms dedicated for hotel rental and the only available rooms are those that the owners make available. While others consist of hotel rooms and individually owned condominiums that are available to be rented while not in use. These
condos are managed by rental management companies or hotel operators
who are responsible for renting, cleaning and maintaining the units. The
hotel reservations are rotated amongst the unit owners and the revenue
generated from these rentals is usually split between the unit owners
and the rental management company. In addition, the unit
owners may be required to give a 15-60 day notice to the rental
management company prior to occupying the unit. In most instances, the furnishing, layout and interior ambiance will be uniform throughout the hotel. Therefore, the owners are limited when it comes to adding their creative ideas to the look and presentation of the units. The logic here is that individual ownership of these units should be transparent to the guests who are renting the rooms.
All of the logistics
– operating requirements, restrictions, rules, regulations – for
specific condotels can be found in the declaration of covenant,
conditions and restrictions (CC&R’s), the rental management
agreements, and the Homeowner’s Association (HOA) articles and bylaws. These documents are in place to govern and bind all current and future owners to the operating standards for the condotel. These standards are enforceable by the HOA and are necessary to ensure the success of the condotel project. For
example, the documents will regulate the minimum number of available
units for hotel rental, means to provide funding and operating reserves
for building maintenance, and HOA fees.
Legalities for developers of condotels
Condotels
are extremely appealing to hotel developers because the presale of
these units allow for more working capital in the interim of the
project. Financing in the hotel industry is usually limited to a 50% loan-to-value. Meaning
the banks/lenders are only approving loans that are 50% of the
properties expected value, leaving the developers to bare the other 50%
of the cost. However, with the presale equity credits
gained from the sale of the condotel units, the banks/lenders will allow
financing closer to the 90% loan-to-value range. In
addition, developers are able to sell these condos for a higher value
than other comparable standard condos in the same market because of the
added benefit of the hotel amenities. These amenities can typically add a 15-40% increase in value per square foot.
Unlike
the sale of standard condominiums, the sale of condotels could fall
under federal and state security laws depending on the structure and
marketing components. The Security and Exchange Commission
(SEC) has regulated that if the sale of a condotel involves a discussion
or mention of the rental management program or investment benefits,
then the developer is required to register the sale as a “security.” In
order to bypass the security registration requirement, it is vital that
the developer understand and adhere to the guidelines set forth by the
SEC. One of the most important conditions require that a
separate, third party rental management company be in place to discuss
any and all rental and investment aspects of the sale to potential
buyers. Therefore only the rental management company, and
not the developer’s sales team, can discuss comparable condotel sales,
rental history, and revenue factors and benefits of condotel ownership. The
developer’s sales team is limited to simply selling the condotel as a
piece of real estate, outlining the valued benefits of the lifestyles,
services, and amenities that are associated with the unit itself.
Who are buying these condotels?
Condotel buyers usually fall into the following categories: real estate investors, business executives/travelers and second home buyers. Real
estate investors find condotels appealing due to the potential rental
income that can be generated via the rental management programs, the
potential appreciation value of the units, and the low maintenance
components. They can also take advantage of the 1031 tax exchange program to purchase these units. This
program gives investors the opportunity to defer paying capital gains
taxes from the sell of investment property(s) if they purchase similar
property(s) of equal or greater value. In most instances, multiple units can be purchased utilizing the 1031 tax exchange credit.
The
purchase of condotels is also appealing to business
executives/travelers who are visiting the same location multiple times
throughout the year. The investment in a condo hotel can be both convenient and cost effective.
As for second-home buyers, these hassle-free, luxury properties are ideal. They are convenient for family vacations, stress-free getaways, and/or intimate excursions. Unlike timeshares, they can benefit from the rental income and appreciation value potentials. In
addition, they work well as a second option for those that live in the
suburbs on the outskirts of big cities who either work or entertain in
the downtown/city areas. They can save the hassles of
battling traffic and/or long drives back to their suburban residences
after a long days work or night on the town.
For
all three categories of buyers, the condotels are also appealing due to
the access of the 24-hour amenities that could include dry cleaning,
laundry, newspaper delivery, concierge services, valet parking, workout
facilities, pools, spas, etc. In addition, these properties are maintenance free because the management companies are usually responsible for their upkeep.
What to look for when buying condotels?
When looking to invest in condotels, it is advisable to consult with a knowledgeable realtor. However, there are some areas of importance to consider when researching condotel investments:
Location, Location, Location. Like the investment of any other piece of real estate – location, location, location is very important. You
should consider beachfront properties, popular resorts, high traffic
areas, such as those near major convention centers or heavily populated
business districts. You want your property positioned so that you can benefit from both the rental and appreciation components.
What’s In A Name. With condotels, the probability of success increases with the marketing and use of corporate branding. Investing in units that are backed by the Hilton, Trump Towers, Four Seasons, etc. brands are always a plus. These
and similar entities are well known/recognized and people choose to
patronize these facilities over independently-owned facilities. The
familiarity, quality, and level of service associated with these
organizations are important attributes for potential guests.
Management. The success of a condotel relies very heavily on the operations of the management company and the rental program. Detailed,
comprehensible and enforceable operating standards must be in place to
maintain the quality and integrity of the condotel operation. Non-compliance
of these standards from owners, tenants and guests could result in the
deterioration of the hotel which could lead to higher expenses and loss
profits. An experienced management company brings their expertise and marketing strategies to the development.
For many condotels are proving to be good investments, because they offer benefits unlike any other investing opportunity. However as with any other investment, be sure to do your research to minimize pitfalls and losses. It is vital to understand the logistics of the investment and that you work the numbers to determine the potential risks. Also because condotels are hybrid investments, remember you are also venturing into the hotel business.
- Galeries
