1675-6 Boutique Hotel The latest buzz words in the hospitality industry are "condo-hotel" and nowhere else in
the U.S. has the condo-hotel craze caught on more than in South Florida. Over the last
four years, the number of upscale condo-hotels in South Florida has grown from two
properties to over 15 and every month more condo-hotel projects, and specifically
Miami-Dade County, are announced. The Fontainebleau, The Tides, The Shore Club,
just to name a few, all represent properties with condo hotel components. The recent
proliferation of these hybrid hotel/real estate developments has generated much interest
from developers and potential buyers as well as hotel industry observers; however, not
many are familiar with its unique and evolving business model.
A condo-hotel is a property that operates as a traditional hotel, but where each lodging
unit is individually owned. Typically, owners may use their unit freely as a secondary
residence, or alternatively, participate in a rental program managed by the hotel operator.
In the latter case, owner usage restrictions are imposed on the unit and rental income
from the unit is divided based on a contractual agreement.
Condo-hotels are appealing to buyers because they offer all the services and amenities
expected at upscale and luxury hotels such as full-service spas, room service and a full
complement of recreational facilities not found in traditional condominiums. At the same
time, the condo-hotel model provides a mechanism for buyers to potentially absorb some
of the carrying costs of a vacation home by participating in a rental pool managed by the
hotel operator.
For developers in Miami-Dade County, a successful condo-hotel project is generating
higher sales pricing per square foot compared to traditional condominiums, and in turn,
showing faster returns than traditional hotels and attractive construction financing.
In South Florida, condo-hotels have been able to achieve premiums between 15 percent
and 40 percent over traditional condominium pricing on a square foot basis. The price
premium is achieved by marketing a resort lifestyle, as well as partnering with familiar
hotel brands that immediately builds credibility, recognition and cache. The hotel brand
partnering is the single most important aspect that places this new generation of condo-
hotel projects apart from the condo-hotels developed twenty years ago. Today, hotel
companies such as Ritz-Carlton, Four Seasons, Regent, Hilton, Sonesta, Le Meridien and
Starwood are among others are committed to the condo-hotel property in South Florida.
Although, there are many identifiable advantages to a condo-hotel development for the
buyers and developers, there are certain issues that must be evaluated on a project by
project basis.
To avoid a long and costly securities registration process, developers must pay careful
attention to how the condo-hotel units are presented and marketed to buyers: the units
may never be marketed as an investment opportunity, but instead must be represented as
residential.
Another consideration is that a condo-hotel must be financially and operationally viable
as a hotel, based on an adequate facility program to meet local market needs, including
the food and beverage outlets, meeting rooms and back of house areas.
Additionally, the rental agreement between the owners and developer or hotel operator
(rental regime) must be designed so that the hotel management company receives
sufficient income to cover the operating expenses of the hotel component. Other hotel-
operations related considerations include:
• provisions for future renovations;
• hotel company/management company responsibilities;
• funding of any hotel operational shortfalls;
• complex accounting issues; and,
• rental program practices and procedures.
The condo-hotel market is by no means a guarantee for success. In fact, there is a very
real fear that the concept is "too good to be true". There is no disputing in Miami Dade
that these new projects, from purely a real estate perspective, are selling briskly;
however, the unknown is how this additive inventory of hotel units will perform in this
market. Any softness which may exist will impact hotel performance and, in turn, unit
owner return. The fear is in underperforming condo hotel operations, that unit owners
will not tolerate operating losses and take action against the operators, creating a risk of
law suits and very unpleasant owner/operator relations. Stay tuned!