Suite Home

Condo Hotels Offer Five-Star Hotel Amenities &

Investment Potential

By Juliette Guilbert

(Reprinted from AirTran's in-flight magazine, Feb. 2006 edition.)

If you like to have your cake and eat it too, consider the latest rage in vacation properties: the condo hotel, which offers prospective buyers a condominium with five-star hotel amenities, and may provide an attractive investment opportunity as well.

The condo hotel concept has been around for a while, but in the past two years it has become a white-hot trend, with most new hotels being developed with vacation condos and/or full-time residences attached.

Joel Greene, president of the Condo Hotel Center (www.condohotelcenter.com), a real estate website that specializes in these properties, says that baby boomers' unprecedented level of wealth is a major factor driving the condo hotel boom.

"Baby boomers have more money, earning power, and ability to travel than ever before," he says. "But they don't have the time to handle the role of being landlords. Condo hotels give them a hassle-free way of investing in real estate where somebody else is doing all the work, and all they have to do is sit back and collect their quarterly income."

When owners are not using their units- which, Greene says, is most of the time-they put them into the hotels' rental programs and receive a cut of the profits.

Greene says that most of his clients buy hotel condos primarily as investment properties. But this is an investment that comes with a very attractive fringe benefit: a vacation home in a desirable location like the Bahamas, Myrtle Beach or Las Vegas, available for as much time each year as the owners desire, on a schedule of their choosing.

The hotels' amenities are top-notch-high-end restaurants, fitness centers and concierge and butler services. And the condominiums, which range from smallish suites to full-scale residential units with multiple bathrooms and full living and dining rooms, are usually sold furnished, with stylish kitchen appliances and fl at-screen TVs.

One sub-trend that has been generating a lot of buzz is the spa hotel condo, such as Miami's Canyon Ranch Living; the Residences at the Wyndham Resort & Golden Door in Weston, Florida; and Chicago's Waterview Tower and Shangri-La Spa (set to open in 2008).

James Walesa, a Chicago financial advisor, says he bought a condo in Canyon Ranch Living because he wanted a place in South Florida he could use at his convenience-and because it made good financial sense.

"I've always thought it would be good to have a place down there," he says. "The problem is my schedule says shoot down for a week, five days. You can't really do a rental that way."

Walesa says he found Canyon Ranch attractive as an investment because of the focus of its offerings and the cachet of its brand: it is a spin off of one of the country's best-known high-end spa resorts. Because of this, he says, this property gives him a better chance of having his unit rented when he wants it to be than a standard hotel, with less competition from the rest of Miami's hotel pool.

"There are oodles of places to stay in Miami," he says. "But if somebody wants a health experience, they are likely to come to Canyon Ranch. And if they're coming to Canyon Ranch, they're an affl uent person, so worrying about that discount on a weekday is not part of their thinking."

Joel Greene says that prospective buyers should take a very close look at a property's offerings before making a commitment-preferably with help from a real estate broker specializing in such properties- and should consider more than just location and amenities.

"They've all got spas, upscale restaurants, concierges and 24-hour room service," he says. "I believe that if you buy a property that is in a good location with good services and amenities, but more importantly is a good, well-known franchise with a strong reservation system, you have purchased a property that should cover all your ownership expenses and may possibly provide you with cash fl ow above and beyond that."

Cash flow is the Holy Grail of condo hotels, and while it's possible, says Greene, it is by no means guaranteed-particularly once you factor in the standard monthly maintenance fees of fifty cents to a dollar per square foot.

"If there is an actual return, it is not likely to be more than 2% to 7%," Greene says. "This is why we tell buyers to focus on their vacation home, appreciation and hassle-free real estate ownership. If you want cash flow, then a condo hotel may not be right for you."

Toni Hoover, a Maryland sound technician, says that the two-bedroom, two-bath unit she and her husband bought in Kingston Plantation, a Myrtle Beach resort managed by Hilton Corp, last year, has not generated cash profits so far. But she says she is nonetheless very satisfied with the purchase.

"We are covering our costs, and what's really great is that the appreciation is unbelievable," she says. "If we sold it tomorrow we would definitely make a healthy profit." Hoover, her husband and two children use the condo for vacations, which has further added to its appeal.

Walesa, the financial advisor, says that although appreciation is never a sure thing, condo hotels are still a worthwhile investment- even for a skeptical-minded financial professional like himself. "I say buy one if you love it," he says. "If I get appreciation, that's great. But to be honest, this purchase is more about the lifestyle than the appreciation."