Developers salivating over condo-hotel projects

Hotel & Motel Management, Oct 18, 2004 by Jeff Higley

They are the latest darlings of the lodging industry--a hedge for developers against the spiraling costs of construction and guaranteed seed money up front. They're called hotel condominiums, and there is no sign of the popularity waning any time soon.

Most developers have at least courted the idea of adding a hotel condominium to their portfolios. More and more are jumping on board as the stakes continue to grow.

* The Falor Cos., based in Chicago, have several of the projects on the board, including one in Chicago in the recently purchased Hyatt Regency Printers Row. The company recently purchased two hotels in South Beach, Fla., and will convert them into one condo-hotel.

* Cleveland-based Boykin Lodging Co. has established a strong hotel-condo presence in Fort Myers Beach, Fla., where it has opened a 92-unit hotel-condo tower and a 43-unit addition is in the early phases of construction.

* Orlando-based developer Richard Kessler bought and will reposition the Beaver Creek Lodge in Colorado as a hotel- condo property.

* Holliday Fenoglio Fowler recently arranged $32 million of acquisition and condo-hotel conversion refinancing for a Doubletree Guest Suites property in Fort Lauderdale, Fla.

* The Hard Rock Hotel in Las Vegas announced plans last month to build a $1-billion, 1.5-million-square-foot hotel- condo adjacent to its current hotel-casino.

* Even extended-stay hotels are getting into the act. Fort Lauderdale-based Cartage is building a $65-million Homewood Suites condo-hotel in Fort Lauderdale.

Condo-hotels have developers salivating over up-front money that individual condo owners put up even before the first shovel of dirt is turned. We're not talking chump change, either. These developers don't have to stump for cash on a barnstorming tour, either. Investors are lining up to get a piece of the action.

The price for the land alone for the Hard Rock project was $86 million for 24 acres.

Prices for units in the Homewood Suites project in Fort Lauderdale begin at $222,000. Donald Trump's proposed 90-story Trump International Hotel & Tower Chicago presold more than $500 million in condo-hotel units as of early summer. It's several years away from opening.

The common denominator for most condo-hotel projects is prime location. Whether it's a bustling, 24-hour urban center or a pristine beach along one of the United States' sun coasts, never has location, location, location been more important for development projects.

The general rule for condo-hotels is that the owner of the unit gets to use the unit for a specified time--in the case of the Homewood Suites project, it's 60 days, but many projects have a much shorter window. Owners of the units can rent the units on their own or through a rental pool. The setup is similar to the timeshare concept, except that the unit owner owns the unit outright, rather than just buying a week or two worth of time. The unit owner gets the perks of owning investment property and earning rental income. However, the unit owner is responsible for association fees, insurance and taxes, among other things.

There also are hotel rooms involved in such projects. Hotel management companies--often the management arm of the developer or a joint-venture partner--oversee the operations of the condo-hotel. That's where the much-anticipated fee- based business comes into play.

But the underlying fact that permeates the entire condo-hotel concept is that the developer receives construction money up front with the presale of the units--thereby reducing the risk.

But before every hotel developer in the United States jumps on the condo-hotel bandwagon, they had better be sure there's a demand for the presale of the units. If they don't, projects can sour in a hurry. That would smudge the darlings' makeup.

jhigley@advanstar.com