Your clients may understand that buying a second home can be a great investment. Consider that such an investment includes a maid, a concierge, a personal spa and more. Sound impossible? It’s not. It’s luxury meets residential living, and it’s the theory behind one of today’s hottest real estate trends: the hotel-condominium combo, or “condotel.”
By Alexa Caravia
Condotels might seem like the latest trend in vacation-home ownership to most, but the condotel concept is actually rooted in the old-style New York five-star resorts of the 1950s: the Waldorf Astoria, the Sherry-Netherland, the Pierre and the Carlyle, to name a few.
Today, the exclusive locations, limited inventory and upscale development quality are making condotels a highly desired commodity, and it shows. The buyers’ demand for a piece of the condotel market has spread like wildfire through major U.S. resort destinations, pioneering an unprecedented wave of condotel conversions throughout Boston, Chicago, Miami, Las Vegas and Washington.
Thus far, South Florida has made its mark as the quiet giant of condotel conversions with a recent string of lucrative projects. One of the first condotel projects to hit the South Florida market was the Mayfair Hotel & Spa. The Falor Companies, whose portfolio has quickly grown to include the world-famous Tides Hotel and Breakwater in the heart of Ocean Drive, purchased the Mayfair Hotel & Spa in a joint venture with Colony Capital in June 2004 and converted the property into a condotel.
Condotel properties are attractive to buyers because, in addition to providing the benefits of home ownership, they offer amenities seldom found at conventional condominiums, including the luxuries and services of a fully staffed, managed hotel. For example, when in residence, Mayfair owners have access to all of the same services and amenities that are available to hotel guests, including spa services, in-room dining and concierge services, as well as access to the pool, fitness center, business center and the Ginger Grove restaurant.
The Mayfair’s 179 suites are all appointed with five-star finishes featuring plasma TVs, high-speed Internet, 350-thread-count linens and Japanese soaking tubs.
Although the Mayfair operates like a standard hotel, it’s actually a condotel, as each of the suites is available for purchase or is already owned by an individual. With prices starting in the mid-$200,000s, the Mayfair offers buyers a luxury vacation getaway at a reasonable price point without the added responsibilities that come with owning a second or third home.
Instead, those home owner responsibilities are often transferred to the company managing the rentals. At the Mayfair, should the owner opt for the rental management program, San Francisco- based hotel and restaurant operator Kimpton Hotels & Restaurants is responsible for all maintenance, marketing and renting of the suite. Should the owner opt for the rental management program with the hotel operator, the owner can occupy his unit 45 days per year, and the revenue generated from each unit in the rental management program is split between the hotel operator and the unit owner.
The Saxony offers an array of accommodations from condotel suites to 4,000-square-foot penthouses.
The interests of the hotel operator and condotel owners are perfectly aligned, more so than with the traditional hotel owner, explains Len O’Donnell, principal of Patrinely Group LLC and developer of The Saxony Hotel and Tower Residences. The operator wishes to maintain the hotel to the finest standards, while providing the optimum level of service, which ultimately benefits the owner.
“We believe hotel condominiums meet a vibrant demand for second or third homes in resort areas and urban centers,” says O’Donnell. “Overall prices that are more affordable than traditional condominiums and the presence of a fine hotel operator remove the owner from the time-consuming management and leasing of their residence.”
The natural advantages of the condotel structure, together with a dearth of conventional hotel financing, have led to the surge in the creation of condotels in areas like Miami, where hotel demand is strong. Although many condotel buyers include investors who recognize the appreciation potential of a revenue-generating vacation home, many potential buyers can also be found among avid vacationers who appreciate the myriad amenities available at luxury resorts.
Shaya Boymelgreen, principal of Leviev Boymelgreen LLC and developer of the 67-story tower Marquis, a property currently being erected in Miami’s Downtown that includes both a condominium building and a hotel tower, cautions condotel developers not to forget that one of the most important elements a condotel can offer buyers is a good time. While The Marquis does not operate like a condotel and offer rentals of purchased units, Boymelgreen believes that developments today benefit from incorporating hotels into projects.
The 67-story Marquis overlooks Biscayne Bay and features design by the renowned architectural firm Arquitectonica.
“In general, we all know that the hotel business has always been up and down,” Boymelgreen says. “What happened was that because of those ups and downs, as well as the cost of construction, people didn’t build hotels for many years. Many hotels were destroyed because they didn’t make enough money and were run down.”
Today, Boymelgreen says, it’s an entirely different story, and that difference is due to hotels that offer guests a nightlife. “Now when you look at hotels, they offer an ambiance,” he says. “Last night, I was trying to get a room at the Radisson because it’s close to the office and I had an event nearby, and I couldn’t get one room! It’s not that the Radisson is a five-star hotel, but that’s the way it is now in Miami. These three-star hotels have been renovated, and they are brand new, fresh, with a good smell. The main thing with the new generation is the ambiance. If they want to go out tonight,
they can go to the Radisson. The room upstairs doesn’t have to be luxurious, but downstairs there should be an ambiance. It’s a new type of hotel.”
The Marquis Team
Guillermo Martinez, Partner – Quorum Network; Shaya Boymelgreen, Developer – The Marquis; Juan Carlos Pardo, President and CEO – Quorum Network; Gilberto Iragorri, Partner – Quorum Network
This new type of hotel is prominent among Leviev Boymelgreen’s projects, as Boymelgreen reveals that, in addition to the Marquis, the company is planning another project in a local park, where this philosophy will definitely be in place. “One of the components of this project is going to be such a hotel, to give service to the condo or rental building and give an ambiance to the whole package,” Boymelgreen says. Aside from the entertainment aspect, Boymelgreen believes that the technological elements of today’s condotels offer buyers features that were simply not available a few years ago.
“Buildings that were built five years ago, three years ago, don’t have the technology we can provide,” he notes. “People didn’t put emphasis on the amenities. Guests who stay at the Marquis are going to have a hotel downstairs selling them whatever they need. You can take a little box to your bed and order anything. From your bed you can open your light, open your window, order your laundry. It’s a product that wasn’t there before; it’s the next level. The speed that you’ll have in these elevators is one that you don’t have now. And you won’t have all the buttons; if you want to go to the 45th floor, you enter ‘45.’ You also have evening pool, and you have morning pool. If people are going to go buy some villa somewhere outside of the city, they’re going to have a nice life, but that cannot compete with the lifestyle these high rises can give you.”
Sellers of other property types, including the traditional vacation home, might also find it hard to compete with the double opportunity for revenue that a condotel holds for its owners.
The Securities and Exchange Commission does not permit developers or Realtors to sell condotels as investments, but buyers remain enticed by the investment potential of condotels. Owners can use their condotel when they want, like they would a traditional second or third home; but condotels offer an “investment opportunity” not standard to traditional vacation homes—rent revenue.
According to Joel Greene of the Condo Hotel Center, by capitalizing on the hotel’s name recognition, advertising, national affiliations, centralized reservation system and management expertise, condotel owners typically receive a higher level of rental income than they would from a traditional vacation home: rent revenue that can partially or completely offset the cost of owning and maintaining a vacation home.
The condotel is a lucrative option for individuals or companies that have a need or desire to visit the same location on an annual or more frequent basis, but not frequently enough or for long enough to justify purchasing a home or traditional condominium.
“Instead of owning a condo that I’m only occupying for 60 days or less on average per year, I can have a condo-hotel unit. And when I’m not utilizing it, I can participate in the management program and have some level of income to help off stunt my explosive expenses,” explains Robert Falor, president and CEO of The Falor Companies and developer of the Mayfair Hotel & Spa. “In addition to that, when I am using it, I get the benefit of the extra services and amenities of a high-end deluxe hotel that I don’t get in a pure condominium.”
“Typically, it’s a less expensive absolute purchase price, and I don’t have to worry about maintenance or housekeeping like I do with a condo,” he adds. “So there are all kinds of benefits if you’re a user of 60 days or less per year. But if you’re using it four to six months a year, this is not the product type for you, in most cases.”
Gracing 400 feet of beautiful beachfront within Miami Beach’s upscale Historic District, the Saxony Hotel & Tower Residences will be situated on 3.31 total acres just north of South Beach on Collins Ave., between 32nd and 34th streets. The project will offer an array of accommodations from condotel suites to 4,000-square-foot penthouses.
But O’Donnell is wary to call the renovated Saxony Hotel and Tower Residences a “condotel.” “We typically do not refer to these projects as condotels, because they are in every way true luxury hotels, complete with all the amenities and services one would expect at either a five-star resort like the Saxony or an outstanding urban boutique hotel like Harbour Island,” he clarifies.
The appeal of condotels is not limited to U.S. buyers, however; the concept has received international attention, particularly from Latin American and European buyers, according to Greene. Now that the concept has become accepted and well known, U.S. lenders have been readily making loans on condotels to both domestic and international buyers. In addition, condotels are appealing to buyers in today’s market due to low interest rates and a dicey stock market: factors that have caused investors to diversify and look for safer alternatives.
Despite the demand, the supply of condotels available for purchase is not consistent. In fact, a limited inventory of condotels exists, and those are selling rapidly. According to Greene, many condotels are sold out in the pre-construction phase, and large condotels, particularly those in Las Vegas and Miami, tend to sell out anywhere between 30 to 90 days.
That explains why South Florida agent-brokers are jumping to purchase their piece of condotels as fast as they can. Of the condotel residences already sold at the Mayfair Hotel & Spa, more than 16 percent have been purchased by brokers (one of which was purchased by Donald Trump’s “Apprentice” winner Kendra Todd).
“As real estate professionals, we understand the value of a centrally located property with luxury amenities and want our piece of the project,” says Martha Adler, an area broker and recent buyer. “The Mayfair has all of the right components that make a great buy.”
The rise of condotels in popularity, as Boymelgreen points out, is part of a larger trend, which is the return to rentals. “Everybody on the market for the last few years has wanted a condo,” Boymelgreen says. “But I think we can expect a trend toward rental buildings [for] someone who wants to live in Miami for a year and then move to Tallahassee the next year and to Orlando the year after. That person wouldn’t want to purchase a condo. These will be special rental buildings, a little bit different than today’s because every generation is a little bit different.”
In condotels, the investment opportunity inherent in owning real estate is joined with the current market trend toward rentals, and buyers are offered both a home and a vacation in one package. After all, condotels are, as the compound name implies, all about combined opportunities.
NEWSBREAK: FALOR LAWSUIT
Robert Falor, the developer of the Mayfair Hotel & Spa and numerous condotels across the country, currently faces multiple lawsuits from creditors and a former business associate. With 15 lawsuits pending in Illinois, a lawsuit was filed in Miami last month, in which an investor for the Breakwater Hotel and Condominium accuses Falor of mismanaging the development and diverting money for unauthorized uses. Falor characterizes the claims as “false allegations,” and notes that “when you’re in this business, you’re going to have litigation.”
PANEL: NAHB TALKS CONDOTELS
Industry experts gathered in Scottsdale, Ariz. from April 2-5 for the 2006 NAHB Multifamily Pillars of the Industry Conference. A panel discussion, held on April 5 at the Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch, discussed “Mixing Condos and Hotels: The Next Big Thing or a Passing Fad?” Moderated by James R. Borders, president of Novare Group Holdings, panelists included Jeff Cohen, Sr., VP of Acquisitions and Development for Gatehouse Capital Corporation; Paul Freeman, owner and developer of Grand Resorts; and Chuck Madison, partner at East West Partners.