CONDO HOTEL TRENDS
A LOOK AT THE BIG PICTURE
May 14, 2004
Hi, Joel Greene here from Condo Hotel Center. This week, rather than focus on a specific property, I thought I’d give you an overview of some of the trends we at Condo Hotel Center have been seeing in the market. Things have been moving so quickly in terms of condo hotels, but sometimes it’s worth taking a moment to step back and look at the big picture. So here’s our perspective on where things are going.
Condo Hotels In General:
We see a spreading enthusiasm about the condo hotel concept. More people are recognizing its potential and therefore creating demand for more inventory.
Condo Hotel Buyers:
At Condo Hotel Center, we find our average buyer is 35-50 years old. We see buyers for Florida properties coming from all over the U.S. On the international front, we now not only see buyers from South America but from Europe as well. The vast majority of buyers want condo hotel units primarily as investments and are focused on the potential for appreciation with the side benefit of hassle-free ownership. They see the ability to actually use their condo hotel unit as a vacation home as important but secondary to their goal of investment diversification.
Condo Hotel Market:
Virtually every single property that has come on the market to date has sold out in pre-construction. Remember, for the most part we’re not talking about 50-unit properties. We’re talking about mega high-rise buildings with on average 200-500 units, and with some in excess of 1,000 units. The speed with which these properties sell out is often as surprising to us at Condo Hotel Center as it is to the developers themselves. For example, the MGM Grand in Las Vegas, a 576-unit condo hotel, was expected to sell out in two years. It sold out in two months! The Platinum, a 255-unit property in Las Vegas, also sold out in just a matter of a couple months.
South Florida continues to be an extremely popular area and one that has shown strong and steady appreciation. As already mentioned, the condo hotel trend which began in South Florida has now spread out west. Las Vegas is leading the pack with many new condo and condo hotel developments in all price ranges being built.
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 a couple of things to happen. We’re seeing developers head to the northern end of Miami Beach (North Beach) and areas still further north such as to Sunny Isles and Ft. Lauderdale. We’re also seeing developers buy existing structures in Miami Beach and either upgrade them, as in the case of The Mimosa which was the former Brazil Motel, or knock them down and start over, as in the case of One Bal Harbour in which a multi-family, high-rise building (Harbour House) was demolished and the condo hotel built in its place. Finally, we’re seeing some properties crop up inland. These condo hotels may not have oceanfront views; however, they’re within a few short blocks of a beach. Because they’re not on the ocean, these properties tend to be priced more economically.
The most popular properties continue to be those with a franchise name, one that brings a reputation for four- to five-star quality or a name that is already well-known. A prime example is Canyon Ranch Living in Miami Beach. People recognize the Canyon Ranch name and feel confident that this property will be of the same five-star caliber as its Arizona counterpart. Of course, it doesn’t hurt that this property will have a 60,000 sq. ft. rooftop spa and fitness center.
The Selling Process:
We’re seeing 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 are seeing some amazing appreciation on their investments.
Like anything for which there is more demand than supply, prices keep going up, up, up. We’ve seen developers raise their prices 3-5 times from when they start selling until they sell out. 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.
There are sometimes, however, some price adjustments made at the very tail end of the sellout phase when developers want to close out their property and move on to their next project. Generally speaking, with regard to price, the best time to get in is usually early on in the first pre-construction offering.
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) Oceanfront land 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.
It’s getting a little easier to get condo hotel financing. 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. They are more accommodating in expediting these loans.
We at Condo Hotel Center have noticed that 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 unit prior to when they had to close. 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.
We are finally starting to see some condo hotel unit resales come on the market. Of course, this is to be expected. Some of the earliest buyers now want to move on to something or somewhere else. However, the resale market is still relatively small, and it’s hard to find a bargain.
Advice to New Buyers:
Every week at Condo Hotel Center, we get numerous calls from new buyers and invariably they ask the same question: How can they choose a condo hotel unit that will be a good investment? Our answer to those buyers remains the same as it has always been, look for the following elements:
Real estate is all about location. Beachfront properties in South Florida 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 or in Downtown Miami near the financial district.
It’s always safest to go with a major company, well-known internationally. Four Seasons, Hilton, Starwood, Rosewood, Setai and Trump are excellent examples. Ask yourself, would you likely stay in a Holiday Inn for $69 or the independent hotel across the street for $62? Many investors or hotel guests will pay a little more for the comfort level they get with a well-known, well-respected franchise.
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.
So there you have it, our take on the fast-moving, condo hotel market. I hope you found my comments insightful.
As always, I thank you for your interest in news from Condo Hotel Center. Next week I’ll get back to our usual business of featuring a new and exciting property. If you know someone who might be interested in receiving our Property Alerts, please direct them to the sign-up on our home page at www.condohotelcenter.com.
Condo Hotel Center A division of Sheldon Greene & Assoc., Inc.
1368 NW 165th Ave.
Pembroke Pines, FL 33028
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