A rebirth of the condo hotel phenomenon
Condominium hotels (or “condo hotels” as they are commonly called) are back in the news again. It seems like every high-end or luxury hotel development is at least considering using the condo hotel approach. The renewed interest is fueled by recovery of residential real estate markets, high construction costs for high end hotel rooms, and the recent change in SEC Rule 506(c) that has completely changed the “securities” dynamics on condo hotels. (On this latter issue, see “The “new breed” of condo hotels — Key to financing new hotel development? Selling condo hotels as “securities” under new SEC Rule 506(c) . . .“)
There are many important issues to discuss about condo hotels – whether they make sense, whether to structure them as real estate or securities, what regime structure best ensures a sound hotel operation, who owns what and who pays for what, and much more. But the first question many people ask, is “What is a condo hotel?”
What is a condo hotel?
Condo hotels enjoyed their first wave of popularity in the United States in the 1970s and 1980s. And the term “condo hotel” is often applied (or misapplied) to a wide variety of real estate structures.
The Condo Hotel Lawyers in JMBM’s Global Hospitality Group® think of condo hotels in the following terms, and condo hotel veterans generally agree:
What is a condo hotel?
Definition: A condo hotel is a hotel where some or all the rooms have been legally transformed into condominium units which are sold to purchasers, and where it is intended that the condominium units will be part of the hotel’s rooms inventory to be rented to the public and operated by the hotel management.
A condo hotel should be “transparent”
A condo hotel that is properly designed, structured and operated will be “transparent.” In other words, a hotel guest at the condo hotel will not recognize the difference between a traditional hotel and the condo hotel. The condo hotel element should be transparent or invisible to the hotel guest.
What else fits well with condo hotels?
As a special class of hotel mixed-use, condo hotels can be standalone projects with no other components, or they may be combined in a single project with other hotel, residential and commercial real estate uses. For example, in addition to the condo hotel units, many condo hotels also have dedicated hotel rooms — “normal” hotel rooms that are owned by hotel owner and are not sold off to third parties.
It often makes sense to include branded and/or unbranded “for sale” condominiums, townhomes, fractionals, club and vacation ownership elements. Some or all of these elements may be serviced by the hotel or not serviced. And of course, a robust hotel mixed-use project will often include commercial uses such as office, spa, restaurant, golf, tennis, marina, and other sport, retail, and entertainment facilities.