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The Differences Between Traditional Lodging Development
and Condominium Hotel Development
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By John Montgomery and  Kevin Holt

From Trump Tower in Chicago to the Hard Rock Hotel in Las Vegas to Colorado’s Beaver Creek Lodge, condominium hotels have surfaced as the hottest trend in the lodging industry. Perhaps the best way to understand condominium hotels is to distinguish among traditional hotel rooms, hotel residences and condo-hotel units. 

Traditional upscale hotel guest rooms are typically 350 to 450 square feet in size and are part of a hotel that is owned and operated by a hotel developer. 

Hotel residences are residential units that are a part of a hotel, usually one that is affiliated with a luxury hotel brand such as Ritz-Carlton or Four Seasons. The unit sizes can range from as small as 800 sf to as large as 4,000 sf. In urban locations, the residences are located on the upper floors of the hotel; in resort settings, they generally are located in an exclusive area within the resort complex. The unit owner lives in the unit full time or uses it as a second home. The residences sell at a 40 percent to 50 percent premium because of the prestige of the associated hotel brand and the ability to use the hotel ’s amenities and services, including the restaurants, recreational facilities, spa, room service and so forth. 

Condo - hotel units are residential units that range in size from 500 sf to 1,800 sf and may comprise all or a portion of the units in a hotel. Like hotel residences, the condo-hotel units are owned by the residents. Unlike hotel residences, the units are placed in a rental program during the time that the owners are not in residence. The rental pool is managed by the developer or a hotel operator.The condo-hotel units may be units in a hotel facility that contains traditional guest rooms, or the entire hotel may be comprised of the condo-hotel units. The units typically sell at a premium of 15 percent to 25 percent as compared with traditional condominium units.

Increasingly, the three types of units — traditional guest room, hotel residence and condo-hotel unit — are being combined, either on the different floors of a vertical project or as parts of a horizontal development.

Condo -hotel unit buyers benefit from the twin advantages of owning a vacation residence with hotel services and amenities and, if they choose to place their unit in the rental program,the carrying costs of their home may be partially or wholly offset by the rentals. Typically, the unit owner receives 50 percent of the rental pool income remaining after paying the management company a management fee (a fee that approximates 10 percent). 

The principal advantage for the condo-hotel developer is the immediate cash inflows from the sale of the condo-hotel units. The developer’s initial capital investment is rapidly recovered (with a profit)as the condo-hotel units are sold.In developments that combine a traditional hotel facility with condo-hotel units, hotel-residence units,or both, the profits from the latter two elements may pay for all or a substantial part of the cost of the hotel element.

If the demographics of the baby boom generation are any indication,the outlook for condo hotels is good. During the period from 2001 to 2003, the number of people in the 55-to 59-year-old age group grew by 1.8 million. An additional 3.8 million boomers will join this age group during the balance of the decade. These are people who are reaching their peak earning years, whose children have recently left home,and who now have different priorities for their time and money. Buying a condo-hotel unit to vacation in — and that may be wholly or partially paid off by a rental stream by the time they are ready to retire to it — may be just the ticket for more and more aging boomers. Hotel developers will be happy to accommodate them..

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John Montgomery is the Managing director, Horwath Hospitality Investment Advisors LLC, Denver. Kevin Holt is the Managing director, Horwath Hospitality Investment Advisors LLC, Los Angeles.
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Horwath Hospitality & Leisure LLC is a leading hotel brokerage and advisory firm with U.S. offices located in New York, Atlanta, West Palm Beach, Miami, Birmingham, Denver, Houston, San Diego, Los Angeles, San Francisco, Santo Domingo and London. The company brokers investment sale transactions, raises capital and provides strategic advisory services for the full spectrum of hospitality real estate.  Combined with its international network, Horwath is one of the world’s largest hospitality real estate oriented practices with over 40 offices and 150 professionals dedicated to the hospitality industry.
 

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Contact:
Horwath Hospitality & Leisure LLC
www.HorwathHospitality.com
Also See: Catching the Buzz on Condo Hotels, A Roundtable Discussion / The Global Hospitality Advisor / JMBM / December 2004
A New Beginning and an Expanded Mission for Horwath, a Trusted Name in the Hospitality Industry for More than 80 Years / April 2002


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