hotels articles

The condo hotel industry is coming to grips with its first-ever construction boom. Ground-up developments — virtually non-existent five years ago — are outpacing conversions three to one as hotel developers build projects in Las Vegas, Orlando, Chicago and other prime markets. The run-up is occurring even though the concept’s complex operating strategy has yet to prove itself on a large scale.

Condo hotels enable individuals to buy hotel rooms, occasionally use them, and pocket income by renting the units to hotel guests. The concept surfaced some 30 years ago in the U.S., and until recently the niche industry operated predominantly in Florida.

But after the 9/11 attacks and a foundering economy drove the hospitality industry to the brink of depression early this century, hotel developers have increasingly embraced condo hotels to fill a financing void left by reluctant lenders: By selling units, developers raise more equity and require less debt in projects.

Even in today’s healthy hospitality industry — Smith Travel Research reports that profits rose 35.3% to $22.6 billion last year — luxury developers are chasing condo hotel deals to help pay for their projects. In fact, 80% of the 50 luxury hotels in the construction pipeline include condo hotel units, private residences or timeshare interests, according to Lodging Econometrics, a real estate research and consulting company.

But more questions than answers surround condo hotels, including whether there is enough demand to support the proposed developments, and how condo hotel unit buyers will react to their first taste of declining income when tourism begins to slow at some future point.

At the very least, real estate experts predict, disgruntled condo hotel unit owners will barrage the industry with lawsuits within the next three years, particularly if they bought the units anticipating a return on investment (See sidebar p.95).

“Well-capitalized, well-thought-out and properly managed condo hotels that work as a hotel first make sense,” says Jim Butler, an attorney and chair of the global hospitality group with Jeffer Mangels Butler & Marmaro, a law firm based in Los Angeles. “But developers have become over-enthusiastic and have wandered away from some basic sound principles.”

This entry was posted on Monday, July 31st, 2006 at 5:11 am and is filed under Hotel articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.