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Florida Leads the Nation in the Number of Condominium-Hotel
 Rooms in the Pipeline with More than 31,500

By Paul Owers, South Florida Sun-SentinelMcClatchy-Tribune Business News

Sep. 12, 2006 - Florida leads the nation in the number of condominium-hotel rooms in the pipeline, but analysts fear an oversupply could prove troubling for developers and consumers.

The Sunshine State has more than 31,500 condo-hotel rooms under development, according to Smith Travel Research of Hendersonville, Tenn. Nevada is second with more than 30,000 rooms planned, while California is a distant third.

South Florida is a hotbed for condo-hotels, which investors consider a good alternative to second homes. Broward County has about two-dozen projects in various stages of planning and construction, including the Trump Las Olas Beach Resort in Fort Lauderdale. Condo-hotels also are planned for Palm Beach County, including conversions at the Brazilian Court Hotel in Palm Beach and the GulfStream Hotel in Lake Worth.

Investors buy the individual hotel rooms from developers, who use the money to help finance the projects. Prices for condo-hotel rooms typically range from $200,000 to $3 million.

When the owners aren't there, they can rent their rooms, charging fees of $275 a night or more at upscale properties. Many turn over the units to a hotel management firm, which takes a cut of the rental revenue.

Experts say developers are building too many rooms, just as they flooded the market with residential condos during the housing boom of 2000 to 2005.

"I'm definitely concerned about overbuilding since some of these projects were fueled by the real-estate hype," said Richard Hollowell, a Fort Lauderdale consultant to condo-hotel developers. "There are only so many bodies that are coming to certain areas to fill up rooms."

As of July, there were nearly 106,000 condo-hotel rooms planned nationwide, making up about 18 percent of all the hotel rooms under development, according to Smith Travel Research. Jan Freitag, a vice president of Smith Travel, says many of those condo-hotel rooms won't get built once developers realize the market is saturated.

Freitag compares the condo-hotel boom to the extended-stay hotel craze of the 1980s and the boutique hotel market of the 1990s.

Both segments proved popular for a time but didn't change the travel industry. He expects condo-hotels to have a similar effect.

"A lot of people can make money with condo-hotels because the fundamentals are strong," Freitag said. "The question is, what happens in a downturn?"

There's no guarantee that owners will have a steady stream of rental income, and many find that they don't have enough money to cover their mortgages, insurance and other expenses.

In addition, condo-hotel owners face restrictions, such as limits on how often they can use their rooms. And owners who try to resell units within five years have trouble recouping their money.

"Just like any investment, it doesn't work out for everybody," said Bob Goldstein, president of Hospitality Consultants Management Services, a Boca Raton-based company that oversees troubled properties for banks. "Condo-hotels are not really designed to improve the net worth of the people who are buying the individual units. The owners are there to provide financing to developers."

Condo-hotels have been around for decades, but the concept became popular after the 2001 terrorist attacks, according to the National Association of Condo Hotel Owners. The Scottsdale, Ariz.-based trade group was formed this year to serve both developers and unit owners.

Before consumers commit to buying condo-hotel rooms, they should review rental program documents, know exactly what fees they'll be paying and have a good idea of how much rental income they can get.

Condo-hotel buyers should expect that rental programs will pay 50 percent to 75 percent of their annual costs, excluding mortgages.

"A lot of owners expect to have their unit paid for by the rental program," said Shadi Zaki, development director for the condo-hotel association. "That's almost impossible."

Paul Owers can be reached at powers@sun-sentinel.com or 561-243-6529.

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Copyright (c) 2006, South Florida Sun-Sentinel

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