Condo Hotel Center: Property
Alert
December
21, 2005
The Condo Hotel
Summary 2005
 Joel
Greene here from Condo Hotel Center. Well, 2005 is
just about over, and so I thought I'd use this holiday
week as an opportunity to look back at the previous
year and summarize some of the trends that we're seeing
in the condo hotel market and also give you some indications
of what we expect to see in the future.
Condo
Hotel Overview: There
is a spreading enthusiasm about the condo hotel concept.
More buyers are recognizing the benefits of owning
a hassle-free vacation home with numerous amenities
and the potential to appreciate.
More developers are creating product
to meet the increasing demand. Whereas we used to
receive a couple of developer calls a week, we are
typically being contacted by one or two each day now,
and not just from the U.S., but from as far away as
Australia, India, Scotland, Ireland, Spain and Belize.
 Condo
Hotel Buyers: Buyers
come from all over the U.S. On the international front,
the largest concentration of buyers comes from Great
Britain, other parts of Western Europe and Canada.
We also see buyers, particularly of South Florida
condo hotels, from various countries in South America.
Purchase
Objective: Despite
the fact that the Securities and Exchange Commission
prohibits selling condo hotels as investments, most
buyers do take investment potential into greater consideration
than the vacation home aspect when making a condo
hotel purchase. They want a second home that they
will enjoy, but they also appreciate the diversity
that owning real estate can provide in their investment
portfolio.
Having said all that, we find that
few people will invest in a location that they could
not see themselves visiting, even if "I have
no intention of using it," unless they have a
truly compelling reason to invest anyways. Our condo
hotel offerings in Dubai, which are amongst our clients'
favorite non-U.S. locales for investment, provided
this type of compelling reason with its guaranteed
8% annual returns. (See Arabian
Crowne in Dubai, pictured right.)
Sales
Process: Most condo
hotel properties sell at least 50% of their units
before beginning construction. Often this is a requirement
the developer must meet before they receive their
construction loan.
 Sell-outs
of large condo hotels with 200 or more units typically
take one to two years. However, those properties that
are much anticipated due to their brand name, such
as Trump
International (pictured left)
or Hard Rock, sell out much more quickly, and the
most highly desirable units are often gone within
days of the property coming on the market.
Best
Time to Buy: The
best time to purchase a condo hotel unit is in early
pre-construction phases. Most properties experience
three to six price hikes before completion. Those
buyers who get in when the condo hotel first comes
on the market, or even better during the "whisper
campaign" phase, realize the greatest appreciation
of their condo.
Hot
Areas: Prime vacation
destinations continue to be the most popular areas
for condo hotel development. Buyers want a location
that is convenient to local attractions, shopping,
restaurants and a major airport.
I would be remiss if I didn't mention
Orlando, FL. Orlando is quickly becoming one of the
hottest condo hotel areas. Once considered the timeshare
capital of the world, it now seems intent on also
capturing the title of condo hotel capital. Projects
like WorldQuest
Resort, Sage
Resort Orlando, Venturella
Resort, Mona
Lisa at Celebration and Bella
Casa Resort were all launched
in 2005.
Sage Resort Orlando is a 260-unit condo
hotel located in the heart of Orlando's attractions
and theme parks.
Not a week goes by that
we don't get a call from an Orlando hotel owner or
developer thinking of converting or building a condo
hotel. And even with a 27% real estate appreciation
rate from 2004 to 2005, many people still see Orlando
property as undervalued. We expect at least 10 and
possibly as many as 20 new condo hotel projects to
become available in Orlando within the next year.
Other hot areas for condo hotels are:
- Beach locations like Miami, Fort
Lauderdale, Myrtle Beach and Caribbean islands.
- Casino locations like Las Vegas,
Reno and the Caribbean.
- Theme park destinations like Orlando,
the Wisconsin Dells and Dubai in the Middle East.
- Mountain and ski areas like Vermont,
Colorado and Canada.
- Metropolitan areas like Chicago,
San Diego and Toronto.
Growth
in Florida: Looking
at South Florida, it's easy to see what is happening.
Miami Beach, the hottest area, is all built up. There
just isn't any undeveloped land. That's causing developers
to head to the northern end of Miami Beach (North
Beach) and areas still further north such as Sunny
Isles, Fort Lauderdale and Pompano Beach.
 A
new trend is developers buying existing structures
and upgrading them, as is the case in many of the
South Beach condo hotels like
The
Breakwater, The
Royal Palm South Beach, and
the new-on-the-market Saxony. (Info available upon
request, but not yet posted on our site.)
We also see developers knocking down
existing structures and starting over, as in the cases
of the Q
Club (pictured right), the W
South Beach, Regent
Bal Harbour and The
Trump Fort Lauderdale in which
existing older hotels were demolished and four- and
five-star condo hotels are being built in their place.
Some properties are beginning
to crop up inland. These condo hotels may not have
oceanfront views; however, they're within a few short
blocks of a beach. An example is the Gallery
One in Fort Lauderdale.
 Another
condo hotel, The
Wyndham Resort in Weston,
FL, offers proximity to championship golf courses
and has a popular onsite name-brand
spa, The Golden Door Spa.
Because
they're not on the ocean, these properties tend to
be priced more economically. As the cost of oceanfront
units soar, we see these alternatives being bought
more by the user/buyer than the investor.
Growth
Outside the U.S.:
We are seeing some very exciting developments in this
regard. By far the most dynamic area is Dubai, one
of the United Arab Emirates. It has come out with
several five-star condo hotels in the last six months
including the Arabian
Crowne, the Windsor,
(pictured right), Business
Bay, and the newest one, Red
Residence in Sports City, and
more are on the way including one to be developed
by Donald Trump.
The Caribbean is also very active
in the condo hotel arena. Consider The Bahamas with
The
Residences at Atlantis, Belize
with Bella
Maya (to be featured soon in
one of our first Property Alerts of 2006) and Jamaica
with The
Palmyra. We also know of new
developments coming to The Turks & Caicos Islands,
St. Lucia, Antigua and the Dominican Republic.
Bella Maya Resort is a four-star condo
hotel under construction with over 400 sq. ft. of
private beachfront in Belize.
Canada has numerous condo hotels in
development as well. We will be introducing an exceptional
condo hotel to you in spring 2006 coming to the great
ski area of Tremblant, Canada. (Please let us know
now if you'd like preliminary info to be sent to you
as soon as it is available.)
Franchises:
The most popular properties continue to be those with
a franchise name, one that brings a reputation for
four- to five-star quality. The brand names that bring
instant attention and sales to a property include
Hilton, Starwood, Ritz-Carlton, Hard Rock, W, Four
Seasons, Trump International and Hyatt.
Unique
Condo Hotels: Not
all condo hotels are brand name high-rises in typical
vacation destinations. We're seeing good quality,
independently-owned properties popping up in unique
locations as well.
Consider The
Lodges at Lake Lawn Resort in
Delavan, WI which offers access to a large lake and
will soon have its own indoor water park. There's
also Waterford
Estates Lodge in South Bend,
IN which will cater to University of Notre Dame alumni
and football fans.
Waterford Estates Lodge is just a mile
from Notre Dame, making it the ideal vacation home
for fans of the Fighting Irish.
The Bilmar
Beach Resort in Treasure Island, Florida,
is a relatively small independently owned beachside
condo hotel that has a successful 40+ year history
operating as a hotel. And there's The
Grand Sierra Resort in Reno
which when complete will have two indoor water parks,
a huge casino and access to Lake Tahoe water sports
and snow skiing.
The Grand Sierra Resort in Reno will
attract guests with its 100,000+ sq. ft. casino and
two immense water parks.
Standard
Amenities: The bar
is continually being raised with regard to amenities.
More properties are now including full-service spas,
fine dining restaurants, fitness centers and concierge
services.
We're also seeing a trend toward including
indoor water parks which have the ability to draw
hotel guests from hundreds of miles away. That's not
to say that all condo hotels are adding water parks,
but for cities that lack beaches and have long, cold
winters, a condo hotel with an indoor park that allows
people to use their vacation homes year-round has
an amenity that appeals to families and helps it stand
out from the competition.
The Selling Process:
A lot of properties take reservations of more than
half the total project long before they've even prepared
their purchase contracts. This means that many of
the best units are reserved months before any money
changes hands and often before even the first spade
of ground has been turned over.
Those early investors often see significant
appreciation on their investments, but in some cases,
they also must cope with project delays, such as when
a developer makes improvements or modifications to
their plans based on buyer feedback, necessitating
a delay in getting condo documents approved by the
state.
The
San Marco Resort in Lake Buena Vista
(Orlando), FL is a prime example of a property where
we got many Condo Hotel Center buyers in early, but
condo document approval and construction have been
delayed several months while the developer purchased
additional land next to the property to add amenities
including a lake with a jogging path around it, two
tennis courts, and a putting green. On the plus side,
from the time we first introduced our clients to The
San Marco Resort a little over a year ago until now,
the average price of the units has risen 38%.
The San Marco Resort in Orlando will
be a four-star condo hotel with two 16-story towers
and a long list of amenities.
Prices:
Like anything for which there is more demand than
supply, prices keep going up, up, up. Developers typically
implement three to six price hikes of 5% to 10% each
from the time they start selling until they sell out
of all units.
Developers are no longer discounting
prices at the beginning of the selling process when
they are anxious to get a few sales under their belt.
This used to be common practice; it is no more because
demand is so great.
Quality:
Condo hotels are adding to the quality of their product
in numerous ways. They're adding state-of-the-art
technology such as wireless Internet access and Plasma
TVs. They're incorporating designer furnishings and
finishes like granite countertops, tile and marble
flooring, crown molding, brand-name kitchen appliances
like Sub-Zero and Miele and using European styling
throughout. They're putting in name-brand amenities
wherever possible like full-service spas, trendy clubs,
fully-equipped business centers and hot restaurants
with popular chefs.
Most condo hotels being built are
of four- to five-star quality. The reason is two-fold:
1) There is demand for the types of services provided
by four- and five-star properties, and 2) Prime land
(oceanfront or near a major theme park) is so costly
that it makes more sense for the developer to put
in a luxury property with units that he can sell at
a premium price rather than lower priced units.
Palm
Coast Resort will be an ultra-luxurious
condo hotel and marina in Palm Coast, FL, near Jacksonville.
Quantity:
According to new research by Lodging Econometrics,
a hospitality research group out of Portsmouth, NH,
the market for condo hotels is expected to stay hot.
The current pipeline for condo hotels over the next
few years is estimated at 29,042 units in 105 hotels
(an average of 276 units per project) either under
construction or in the planning stages. About 75%
of these units are new construction, with the remainder
converted from existing hotel guest rooms. About 88%
percent of the hotels are considered luxury or quality;
46% of them are in Florida.
In 2006, 32 projects with 4,831 condo hotel units
are forecasted to open while 27 projects with 5,025
units will open in 2007.
Financing:
Financing a condo hotel unit has become easier for
buyers. There was a time when most banks and mortgage
companies weren't even familiar with the term "condo
hotels." They now know it and also recognize
the viability of these properties. And with more competition
from various lenders now in the market, they are more
accommodating in expediting these loans.
Perhaps the only major hurdle we still
see is financing of condo hotel units that are under
500 square feet and do not have kitchen facilities.
For this reason, most developers, even those who are
converting existing hotel rooms into condo hotels
units, will find ways to increase their unit sizes
(often by combining two rooms into one unit) and will
install at least basic kitchen facilities.
Contracts:
Contracts that allow assignability have become rare.
In the past, at some properties, buyers could place
a deposit on a unit in the pre-construction phase
and then flip their contract prior to closing. Developers
now want to be sure that they don't compete to sell
their last few units with investors who purchased
early at pre-construction prices and are now re-selling
them at below the developer's current prices. Among
the methods used to discourage flippers are asking
buyers to put up higher than usual cash down deposits
at reservation and requiring that the same name that
appears on the reservation also appear on the contract.
Resales:
The condo hotel resale market is still extremely limited.
Because only a relatively few condo hotel properties
have been completely constructed to date, there are
few resales on the market at this time. Most sales
are therefore taking place between the developer and
new buyer. Of course, as more properties are completed,
we will see more resale properties become available.
Conversions:
As alluded to earlier, one of the next big trends
within the condo hotel market will be the conversion
of pre-existing hotels into condo hotels. Many smaller
independently owned hotels and many grand old hotels
such as Cheeca
Lodge in Islamorada, FL and
The
Inn at Pelican Bay in Naples,
FL are welcoming individual investors.
The Inn at Pelican Bay is one of the
few condo hotels located in prestigious North Naples,
FL.
Hotel owners are using
the conversion process as a way to finance improving
their property with updates in amenities and services
to become more competitive in the market. Selling
off units as condos to individual buyers allows the
developer to finance the upgrade without increasing
his debt or putting up more of his own money.
A conversion could also be a potential
exit strategy for the developer. A hotel may be sold
off unit by unit for more than an outright sale of
the whole property, and the developer can still retain
his 50% income stream and hire a professional management
company to operate it for him. In addition, if he
chooses, he could sell that income stream to another
investor now or in the future.
Finally, another reason why we're
seeing conversions of existing hotels and resorts
to condo hotels is simply that there is limited desirable
land on which to build new structures. For example,
a developer wanting to create an oceanfront condo
hotel in say Miami Beach, must buy an existing structure.
He is then faced with the decision of demolishing
the old building and starting fresh or simply renovating
and upgrading the existing structure. The latter strategy
is a less costly and much quicker option, but depending
on the initial footprint of the existing building
and current building and height allowances, he must
decide if that is the best use of the land.
1031
Exchanges: We see many people using condo
hotel units to complete 1031 exchanges. A 1031 exchange
allows a taxpayer (exchangor) to sell his or her existing
property (relinquished property) and purchase more
profitable and productive property (replacement property)
while deferring federal, and in most cases state,
income taxes.
Most people doing 1031 exchanges look
for condo hotel conversions. Preconstruction opportunities
will not work for them as they have to close on their
purchase within six months, and it may take up to
or even more than two years for a property to be built
from the ground up. The conversions take less time
to build than new construction and have more predictable
completion dates, thereby ensuring that the buyer
will be able to meet a 1031 exchange deadline.
Developers:
Some of the biggest names in the hospitality industry
are becoming involved in condo hotels. Donald Trump,
for example, now has six condo-hotel projects in the
works in Chicago, Fort Lauderdale, Miami, Phoenix,
Las Vegas, and Dubai.
Mixed
Use: We're seeing lots of hybrid situations.
Large-scale condo hotel properties such as The
Cosmopolitan Resort and Casino
in Las Vegas will contain a mix of several thousand
condo hotel units and traditional hotel rooms. In
addition, there will be 150,000 sq. ft. of meeting
space; 300,000 sq. ft. of retail, restaurant and entertainment
space; a 70,000 sq. ft. casino; and a 50,000 sq. ft.
spa.
The Cosmopolitan in Las Vegas will
be a $1.5 billion development located right on the
Las Vegas Strip.
Condo
Hotel Alternatives:
Just as the condo hotel market has grown in the past
year, we see more fractionals, private residence clubs
and destination clubs coming on the market.
While these alternatives do not offer
revenue-generating potential, they do provide a way
to own an ultra-luxurious home or multiple homes in
fantastic destinations all at a fraction of the cost
of whole ownership. Owners get four to eight weeks
of use at places like Calistoga
Ranch in Napa Valley, CA; The
Ritz-Carlton Club in Aspen,
CO; One
St. George in St. George Island, FL;
Coral
Gardens in he Turks & Caicos Islands;
The
Waterford Private Residence Club in
the Cayman Islands; and Lighthouse
Key in Orlando, FL.
The Waterford Private Residence Club
will be a five-star resort and spa with villas and
estate homes in Grand Cayman.
The Future
of the Condo Hotel and Fractional Market:
75 million baby boomers in the U.S. will retire in
the next 15 years. If just 5% choose to own just one
condo hotel unit or fractional as a seasonal second
or third residence, 3.75 million units will be sold
or 250,000 units annually.
Advice to New Buyers:
How can buyers choose a condo hotel unit that will
be a good investment? It's best if they can work with
a real estate broker who specializes in condo hotels
and can make them aware of the pros and cons of all
products currently on the market. Aside from that,
they should look for the following elements:
Location: Real estate is
all about location. Beachfront properties in South
Florida, as an example, have done exceptionally
well in recent years. Their appreciation has been
significant. If you prefer a property that is not
on the ocean, it's a good idea to select one in
an area where you can expect to have business driven
to your property, such as near a major convention
center, a large metropolitan area or theme parks.
Franchise: It's always safest
to go with a major company, well-known internationally.
Four Seasons, Hilton, Starwood, Rosewood, Setai,
Ritz-Carlton and Trump are excellent examples. Investors
and hotel guests will pay a little more for the
comfort level they get with a well-known, well-respected
franchise.
Management Company: Compare the management
companies and their rental-sharing program. You
will likely feel more comfortable investing your
money in a condo hotel with an experienced, top-notch
management company vs. an independent operator.
Also, it's worth noting that an established management
company does worldwide marketing and likely has
a state-of-the-art reservation system that will
help ensure your unit is rented as much as possible.
Wrap
Up
Well now you have an idea of what we at Condo Hotel
Center see as the current state of the condo hotel
market. We welcome your questions and your input.
We also want to take this opportunity to thank those
of you who have tipped us off about new properties
coming on the market and extend gratitude to those
who have referred friends, family and associates to
our website and our services as buyer brokers.
Thank you to all of you, our Property
Alert subscribers. In the coming year, we look forward
to serving as your information source for all things
condo hotel. We hope you find our Alerts helpful in
making educated buying decisions and will choose Condo
Hotel Center for assistance with all of your condo
hotel purchases.
From all of us here at Condo Hotel
Center, we extend best wishes to you for happy holidays
and a healthy and prosperous new year.
Joel Greene, Broker-Associate
Condo Hotel Center
A Division of Sheldon Greene & Assoc., Inc.
Licensed Real Estate Broker
13499 Biscayne Blvd., Ste. 210
N. Miami, FL 33181
PH: 954-450-1929
FX: 954-450-1321
CondoHotelCenter@aol.com
www.CondoHotelCenter.com
www.CondoHotelsDubai.com
www.WorldClassCondoHotels.com
www.CondoHotelsBahamas.com
www.CentralAmericaSecondHomes.com
www.DominicanRepublicVacationHomes.com
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