Condo-hotels....new wave in California

[4ARedOctober Super Moderator Find all posts View Profile Close 4ARedOctober]

http://www.latimes.com/classified/re...,1244395.story

From the Los Angeles Times
Taking reservations
California vacation home investors are riding a new wave. The condo-hotel is catching on.
By Diane Wedner
Times Staff Writer

March 12, 2006

JUST when investors thought they knew everything about vacation home purchases, along comes a brand-new way to spend lots more money.

Hybrid condo-hotels — luxury hotels whose rooms or suites are sold as condominiums and are available to owners from a week to three months a year — are on their way to California, with 22 projects already announced and more planned.

In the Southland, 5,500 people seeking a youthful, urban scene already are on a list at the new Hard Rock Hotel San Diego to purchase rooms that start at $400,000. Resort enthusiasts who want to watch dolphins frolic outside their ocean-facing rooms are signing up to buy casitas and villas at Terranea Resort in Rancho Palos Verdes, starting at $1.9 million. The Remington Las Montañas Resort Hotel & Spa in Indian Wells soon will be selling units from the low $900,000s. And La Costa Resort and Spa in southern Carlsbad has built 21 of 39 units, called the Villas, with plans for more. The condos run from about $1 million, for 1,780 square feet, to $1.5 million for 2,500 square feet.

Several other projects, not yet confirmed, are being talked about for Santa Monica, West Hollywood and Beverly Hills. The newly renovated Beverly Hilton is considering a number of options for the landmark, including possible condo-hotel units. The 118-year-old Hotel del Coronado in San Diego is developing 28 condo-hotel units on the property, and at least two condo-hotels are slated for Anaheim.

The concept — in which buyers are the sole owners of furnished units they can use and rent out — took hold in Hawaii and South Florida three decades ago but only recently caught on in Las Vegas, Chicago and New York. Nationwide, 228 U.S. condo-hotels are in the pipeline, according to Jan Freidag of Smith Travel Research, a leading lodging-industry research firm.

To attract buyers, developers partner with brand-name chains, such as Four Seasons, Starwood and Mandarin Oriental. By selling individual units, developers get some of the construction money up front, which in turn spurs lenders to finance projects they view as producing a more stable revenue flow than traditional hotels.

And those who invest? "It gives them use in a really glamorous, high-profile place with a clubby, well-known brand," said Rick Davis, a Los Angeles hotel-industry attorney. "And it gives buyers some amount of income to offset ownership costs." Under most condo-hotel plans, rents are split 50-50 with the hotel owners, who often, but not always, manage the rentals.

This is no time-share arrangement, in which participants buy a week's stay in a unit, for example, as part of a pool of as many as 51 other owners.

With condo-hotels, the time allowed for owner use varies and is tied to the rules established by the hotel. Time allotments also typically are dictated by the city in which the hotel is located. When owners are not occupying the units, the rooms are rented out. When owners sell the units, they get all the proceeds.

The hotel owns and maintains the common spaces, such as pools, restaurants and spas, to which condo owners have full access. Unit owners pay monthly fees — which vary according to the number and quality of amenities......

read more at the link......



The article has a graphic which compares hotels, condo-hotels, and timeshares.

[4ARedOctober Super Moderator Find all posts View Profile Close 4ARedOctober]

Better explanation and listing of condo-hotels at this link

http://www.condohotels.com/

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

Oh boy, one of my favorite topics

where is PerryM when you need him?

In any event, I love the concept of condo hotels. I almost bought one in 2002 in the Alexander Hotel in Miami Beach. I should have done it because the unit I had my eye on was selling for $350k and is now worth over $700k.

In my assessment of condo hotels, I determined that the valuation of those units were very closely aligned to the rental market for hotels in the area. In other words, the prices modulated based on the strength of the local economy. There was a clear divergence of the condo hotel prices and the condos in the area which I was also looking at.

Condo hotels can be a good investment if you know what you are doing. If you don't, the developer will use your capital to finance the project and transfer ALL of the risk of operating a hotel to YOU. This investment type is fraught with risk, especially given the relatively high maintenance fees relative to condos. They are low relative to timeshares oddly enough.

I believe that the general state of condo hotels is that many investors have no idea what they are buying and they see an opportunity to get rental revenues from the hotels rental program. That could be true as long as there is a history of strong rentals and high occupany at that resort. I analyzed real data from the Alexander hotel and it turned out that even at $350k, the rental return was NOT cash flow positive. At $700k, it certainly wasn't.

I believe that timeshares are far superior investments than condo hotels because the resale market is so weak. It is very easy to become cash flow positive on a timeshare in your first year. And, the capital investment is so low that you can incrementally add to your portfolio.

A 15-25% return on capital is pretty easy in timesharing. Some people claim up to 50% return on capital.

So, condo hotels are a great concept. I'll probably buy one when I can find the right deal in the right location. But, timeshare deals abound and are easy to buy, sell and rent for quick profit.

[CaliDave Super Moderator Find all posts View Profile Close CaliDave]

w
Condo hotels can be a good investment if you know what you are doing. If you don't, the developer will use your capital to finance the project and transfer ALL of the risk of operating a hotel to YOU. This investment type is fraught with risk, especially given the relatively high maintenance fees relative to condos. They are low relative to timeshares oddly enough.

I don't know anything about condo hotels.. but if you compare timeshares to condos..
the mf's in timeshares are going for housekeeping, insurance, upkeep or the inside and out, new furnishings every so often, and utilities.. all of which are not provided on wholly owned condos.
Does a condo hotel more closely match a condo or timeshare?

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

Today, a condo hotel is more like a timeshare in that the condo hotel picks the furnishings and manages the hospitality.

But, they are not all like that. In the Alexander Hotel, a 2 bedroom, 2 bath Oceanfront unit in 2002 had a monthly HOA fee of $825. Property tax was $7000. Insurance was around $2000. You were required to furnish it yourself and those furnishings would generate a grade from the rental management company. The higher the grade, the higher the rent. For the top grade, it cost $30,000 to furnish the unit. And, housekeeping was $60/cleaning. The Oceanfront units had an 85% occupancy rate year round.

So, the total annual costs would be 825*12 + $7000 + $2000 + 60*50 + 30000/5 years = $27900 which translates to $536 per week.

The rental program had a 45/55 split where the owner got the small share. But, the rent covered the housekeeping for those rentals. You could also rent the weeks on your own.

At $700,000 and a 7% cost of capital, that would add $942/week to the cost of the condo hotel week. And, taxes and insurance would go up due to the increased market value. So, the total cost of ownership would be $942+$536+154 = $1632.

If you rented it the whole year, assumed an 85% occupancy and backed out the housekeeping fees (since it was included in the rental split), your total cost would be $1572/week or $225/night.

At 85% occupancy, this resort unit would have to rent at $588/night to generate a return on capital equal to the cost of capital of 7%.

It 2002, that unit rented for about $185/night in the off season and about $300/night during peak winter season.

So, in order for the Alexander Hotel to be a good investment at today's prices, you would have to believe that rental prices will be sky rocketing in Miami Beach and that area is recession proof.

Or, you would have to believe that we are at the beginning of the creation of a housing bubble that will last for another 5 years. It turns out that we are at the other end of that cycle and prices are more likely to decline than increase.

So, those people who are buying this condo hotel at $700k will likely lose money or take 20 years to break even.

That's how fraught with risk condo hotels are right now.

[CaliDave Super Moderator Find all posts View Profile Close CaliDave]

Great summary.. thanks for all the good info.

[BocaBum99 Super Moderator Find all posts View Profile Close BocaBum99]

Okay, now let's contrast that Condo Hotel in Miami Beach with an equivalent Timeshare in North Miami Beach. Solara Surfside is a couple of miles north of the Alexander condo hotel. The amenities are definitely better at the Alexander Hotel. But after we do the cost analysis, you decide which is better.

I just rented a week off the SFX sell off list at Solara Surfside in a 2 bedroom Oceanfront unit. 1757 sqft and a full oceanfront unit as opposed to a half ocean front unit at the condo hotel. The condo hotel would about 1200 sqft in size. That week cost me $299/week to rent from SFX.

Since I am a Bluegreen owner, I frequently rent weekends at this resort for $59/night plus tax. My next stay will be in April for a long weekend. Total cost is $200 for 3 nights including taxes.

And, I just checked today and there are 3 units available for next week on bonus time. I would have picked one up, but I will be at Disney Old Key West with my family, so that was a better deal.

With economics like this, timesharing makes a lot more sense than a condo hotel. And, the upfront capital is lower and you can go to other places.

Timesharing will become the alternative to second homes over the next 20 years. The economics just make too much sense.

[Barbeque Senior Member Find all posts View Profile Close Barbeque]

There was a condo hotel being developed a few years ago in Pismo Beach by where the autos can drive onto the beach at the dunes. I dont remember the name of it.

[4ARedOctober Super Moderator Find all posts View Profile Close 4ARedOctober]

Agreed. Thanks for the analysis boca.

Great summary.. thanks for all the good info.

[4ARedOctober Super Moderator Find all posts View Profile Close 4ARedOctober]

More cooling in Vegas market

Sales have been suspended at another luxury condominium project in Las Vegas, as observers said interest had dwindled in properties that were not close to the Strip.
Letters were sent to nearly 100 buyers at the Curve project in southwest Las Vegas, offering to refund their deposits or extend their contracts by 150 days, Vice President Paula James said.
Developers had set a 180-day period to sell 75 percent of the units before beginning construction, but the first tower of the project sold only 53 percent, or 97 units, James said.
At least seven projects have publicly folded or stalled in a little more than a year, out of the more than 100 once proposed.


from OC register print edition