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Condotels Work Their Way Across U.S., Arrive in Region

By Katie Curnutte and Ashley Wilkins
Reprinted from The Commercial Record, July 1, 2005

Room service every day, a concierge always on call to procure theater tickets or dinner reservations on a whim, and constant access to state-of-the-art spas and gyms might seem like perks out of reach for most mere mortals. But in cities like Boston and New York, big-time baseball players and CEOs don’t have to shell out hundreds of dollars a night and rent a hotel room to get those perks. They can simply buy a literal piece of the Ritz-Carlton on the Boston Common, or of Trump Tower on Central Park West.

And it’s likely that well-heeled Connecticut residents may soon have a similar option.

Condotels – hotels that sell rooms on a sort of time-share basis, or that have condominiums or apartments under their names and roofs – are taking off in resort towns and big cities alike across the country. And if developers think market conditions in Connecticut would support them, condotels will probably come here next.

Jim Butler, chairman of the Global Hospitality Group of the Los Angeles law firm Jeffer, Mangels, Butler & Marmaro, specializes in the development of condotels. Although he wouldn’t name names or specific places, he said he has been working with some developers who are exploring the possibility of building condotels in Connecticut.

“You need to make sure it works for both the hotel and condo components,” Butler said. “Connecticut is certainly not escaping the trend.”

Condotels first started in the 1980s, Butler said. The first was Silverado, a condotel in California’s Napa Valley. They were used as a tax shelter until the Federal Tax Reform Act of 1986 eliminated that benefit, causing their popularity to dip for some time.

In the past five years, however, they have experienced a wildly successful rebirth across the country. The hot spot for condotels is southern Florida, but urban centers like Chicago, New York and Boston have lately been inundated.

In the Bay State’s capital city, the InterContinental Boston Hotel and Residences is currently under construction. Once completed, the 424-room building will contain 130 condominium units, with condo prices ranging from $635,000 for a one-bedroom unit to $6.8 million for four-plus bedrooms.

Residents have the option of choosing from 38 different floor plans ranging from 428 square feet to 4,951 square feet, although all will have access to a variety of hotel amenities including room service, maid service, a fitness facility, a spa facility and a lap pool.

“The highest end of the market is the combination of a luxury residential environment coupled with 5-star hotel services, although we offer ours vertically, which is an important distinction,” said Brian Fallon, managing director of New York-based Intell Management and Investment Co. and Intell Boston Harbor LLC, the project’s developer.

“Some projects have no services and some have horizontal relationships with hotels, but we have all the amenities within the building, as well as the privacy of your own residence.”

Although Boston is already home to a host of condotels, there are more in the works, which indicates that such properties are not a fleeting trend.

Columbus Center is a project slated for completion in 2008 that will be built over seven acres of the Massachusetts Turnpike in Boston’s South End neighborhood.

Upon completion, the development will encompass 1.3 million square feet in three distinct properties and will include 451 condominiums and 180 hotel keys, as well as 917 parking spaces, 39,400 square feet of retail space and 37,150 square feet of open space. The buildings will offer the highest views of Boston’s Back Bay and will contain the only townhouses in the city that open onto parks, according to Columbus Center’s developer, Boston-based Winn Development.

‘Different Animals’ But Boston is by no means the only city that is expecting condotels to open in the near future. Butler is working with the developers of five different properties in Chicago.

“They’re being looked at pretty much everywhere,” Butler said.

There are several factors that can make a condotel work, said Joel Greene, a broker with the Condo Hotel Center in Florida.

“What makes a condotel successful … is location,” Greene said.

That location needs to be in a resort market, on a beachfront, in a central business district or major convention area, or on a ski resort or golf course, he said. Connecticut has several of those, with Hartford’s up-and-coming downtown, the Shoreline as a destination for vacationers and second-home buyers, and the posh communities of Fairfield County.

But in Greene’s estimation, the most important factor that determines the success of a condotel is the brand. Ritz-Carlton, the Four Seasons and Hilton all have dived into the concept. Big, national brands that are well-known across the country and the world have both the marketing budgets necessary to sell the residences and the financial backing to get such a difficult undertaking off the ground, Greene said.

And there is difficulty involved. The logistics and marketing of a condotel are completely different from those of either of the components alone, Butler said.

“They’re very complex when you put them together,” he said. “They’re different animals.”

For a condotel to be successful, there has to be a strong market for both condos and hotel rooms, Butler said.

“First and foremost, the project has to make sense as a hotel,” he said.

Some developers believe that if the condo market in a certain location is hot, the project also will succeed as a hotel. But that isn’t always the case. And there are challenges in the management of condotels that neither condo complexes nor traditional hotels face.

In a traditional hotel, the management always knows what it has to offer. In a 200-room hotel, for instance, there are 200 rooms to rent out at any given time.

However, if the condotel is the type where people buy rooms, but keep them available for renting when they are not using them, calculating how many rooms are available for a conference or a large group gets much more complicated, Butler said. Owners who take part in a rental program often defray some of the cost of buying the hotel room.

“A normal hotel knows what its room inventory is,” he said.

Those types of condotels have several ways to deal with the situation. Some condotels make very specific agreements with the owners that they can only use the room at certain times, or require advance notice before the owner comes to stay.

The management of the condotel also must make sure the owners understand that the room must be maintained as a traditional hotel room, if it is in the rental program, and that the owners cannot keep their belongings in the room when they are not there.

The condotel management also must deal with a condominium association, to determine how to maintain both the interiors of the room and the exterior and common spaces.

The buyers of condotels are primarily baby boomers, Greene said. Because of restrictions with the type of condotels that encourage rooms to be placed in rental programs, those are not popular with retirees, since they can’t live there year-round.

But boomers have discovered that condotel ownership is a way to invest in real estate without all the traditional hassle of being a landlord. If a couple invests in a duplex and rents it out and a pipe bursts in the middle of the night, they are the ones who have to get out of bed and call a plumber.

If they own a room in a condotel, however, the management will take care of it automatically, Greene said.

“It’s the hassle-free nature of real estate ownership,” he said.

It doesn’t hurt that the owners can spend several months a year in what is likely their typical vacation spot and enjoy all the luxuries of a 4- or 5-star hotel.

“It’s just the gravy on the cake,” Greene said.

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