How Developers Can Comply with SEC

Regulations for Condo Hotels

Q. I'm a developer in the process of developing a condo hotel. Can you tell me what is the correct way to answer questions about the rental program so that we are in compliance with SEC (Securities & Exchange Commission) regulations regarding the sale of condo hotels?

A. Of course, you'll want to speak with your attorney, but briefly, here's what he/she will tell you is the correct procedure.

Your sales team and your management team should be separate entities. Your sales people should not discuss the condo hotel's rental program with prospective buyers. Instead, they should pass general inquiries from buyers about the rental program to someone in management.

Q. Can specific questions about the percentage revenue split on the rental program at the condo hotel be answered prior to the buyer entering into contract?

A. As crazy as it sounds, your attorney would probably advise that you don't answer these types of questions, in accordance with SEC regulations.

However, here's how I see developers get around this issue. They explain to the buyer that immediately after signing a contract, he or she can then get specific revenue split and rental program information from the management team, and can cancel their unit purchase during the rescission period if they are not happy with what they learn.

This way the developer could show the SEC that the buyer signed the agreement to purchase the condo hotel unit based on information only regarding the real estate and the lifestyle, not the investment aspects of owning a condo hotel.

For more details on this topic, be sure to check out this page, What Every Condo Hotel Developer Needs to Know.

* The above questions were submitted via e-mail by a visitor to www.CondoHotelCenter.com. The answer was prepared by Joel Greene, a licensed real estate broker with Condo Hotel Center which specializes in the sale of condo hotel units and fractional ownerships in private residence clubs.