|By Jim Butler, Hotel Lawyer, Author of www.HotelLawBlog.com
December 5, 2006 - The Condo Hotel Symposium just ended was a good show.
I have to hand it to Information Management Network (IMN)—more than 550
people gathered to hear insights from the industry’s leaders and experts
on this increasingly important technology.
They may also account for a big surge in traffic at www.HotlelLawBlog.com
as more people have come to study the wealth of free information on Condo
Hotels (scroll down the right hand side and select articles buy Topic).
If anything, the conference confirmed all my observations made on November
28, as I was heading to Las Vegas (see, “Condo Hotel Lawyer—What
in the world is going on with condo hotels now?”), but I have some
potentially interesting refinements and further observations inspired by
Here are the highlights of these further ruminations . . .
Where we’ve been and where we are going with condo hotels . . .
As I said in my opening general session comments at the IMN Symposium:
The condo hotel phenomenon has been one of the most significant events
in the history of real estate – at least in the last 50 years – and may
rival the 30 year fixed rate mortgage for its impact.
The future of condo hotels is likely to be no less significant than its
past, although it will go through a TRANSFORMATION or METAMORPHOSIS.
This transformation will see hotels tightly integrated into hotel-enhanced
mixed-use projects, where the condo hotels will play a smaller part or
only impart the legacy of their technology and integration to the tight
integration with residential, office, and entertainment real estate uses.
The speculative foam is off the market. The flippers are finally gone.
We believe that this paves the way for sustainable growth accompanied by
a flight to quality—often, though not always, meaning a flight to well-recognized
brands and standards such as Ritz-Carlton, Mandarin, Regent and others.
There may be pain for some as certain projects and markets find their "normalized"
baseline and realistic valuations.
The slowdown that may be experienced by some projects and some markets
will reflect either their underlying poor planning—a key to validate demand
at the front end for both the hotel and residential components of the project—or
a failure to properly identify the real buyers of the residential units
and to develop a legal and effective marketing program to reach the target
buyers (at the front end of the project).
There is an encouraging precedent provided by the model seen almost exactly
20 years ago when Marriott led the charge of major brands into the timeshare
business, replacing the fly-by-night timeshare developer and transforming
the industry into thriving vacation ownership and fractional industry.
The huge success enjoyed by condo hotel developers over the past 5 years
will continue to be a magnet for developers, but there is no longer a rising
flood tide to carry all ships, so quality, analysis and developing for
target unit buyers will be more important than ever.
Pulse of the Las Vegas Conference—further insights and reflections
Condo hotels—hotels where some or all of an operating hotel's room inventory
is condominiumized and sold to individual owners—will continue to be viable
on more selective basis, but essentially as we know them today.
There will be a return to fundamentals in assessing the viability of projects.(See
Hotel Fundamentals—5 Keys to Success!”
Before the project is begun. There will be an intelligent and comprehensive
market study and/or feasibility study of BOTH the hotel and residential
First and foremost, the physical plant, legal regime structure, and residential
elements must promote and support a viable hotel operation—one that is
both economically viable and which can deliver consistent, predictable
levels of service and quality.
Although condo hotels will continue to be successful on an increasingly
selective basis, the “technology” developed over the past 5 years, will
be used to create an entirely new generation of exciting product which
I like to call “Hotel-enhanced Mixed-use” where hotels are an important
part of a mixed-use project, and INTEGRATION of the project components
is more important than ever so that every component truly contributes to
the success of the other components of the project.
More than ever, INTEGRATION will become the keystone for future projects—the
business, legal, marketing and functional integration of all the components
in the project. From a legal perspective, the condo hotel phenomenon has
enabled a handful of firms to understand how the regime structure must
work to accommodate all this.
While I believe my generalization on prospects for the condo hotel industry
are vary accurate, at the end of the day, the drivers and factors for each
project will vary, – whether for resort or urban, luxury or ultra-luxury
vs midscale or lower, geographic market, unique and specific drivers for
the market. That is perhaps the most exciting update on the condo hotel
market—what's happening in specific markets and structures. What drives
the successful sell outs now?
Condo hotels are proven. Condo hotels work. They are a rock-solid
technique when well planned and executed. They will continue to evolve
and improve, but their fundamental viability is not even remotely in question.
Future toward more hotel-enhanced mixed-use. The future is toward
more hotel-enhanced mixed-use where hotels and condo hotels are a part
of the project, but where there also may be traditional hotel, retail,
office, entertainment, pure residential, and other components. Condo hotel
will lend their technology legacy of integration and regime structure,
but will more often be only a smaller part of the project.
Success by individual project merits. While the IMN Condo Hotel
Smposium reinforced and validated my pre-conference assessment on November
28, 2006, I now see that should have added a major qualification to my
assessments. The generalizations are just that—generalizations. And the
prospects for a project will be very project specific.
Our Perspective. OK. I admit it. We are prejudiced. We represent developers,
owners and lenders. We don't have the conflicts of representing the brands
or pure management companies. We have been the business and legal advisors
to such clients on more than 85 hotel-enhanced mixed-use projects, all
of which have at least a significant condo hotel element. These deals are
in every major market in the U.S., as well as Latin America and Europe.
They are a part of our $40 billion of hotel transactional experience involving
more than 1,000 properties all over the world.
About the Author:
Jim Butler is recognized as one of the top hotel lawyers
in the world. He devotes 100% of his practice to hospitality, representing
hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality
Group®—a team of 50 seasoned professionals with more than $40 billion
of hotel transactional experience, involving more than 1,000 properties
located around the globe. In the last 5 years alone, they have brought
their practical advice to more than 80 “hotel-enhanced mixed-use” projects,
a term Jim coined to fill a void in industry lexicon. This term describes
one of the hottest developments in real estate-where hotels work together
with shopping center, residential, office, retail, spa and sports facility
components to mutually enhance the entire project’s excitement and success.
Jim and his team are more than “just” great hotel lawyers. They are
also hospitality consultants and business advisors. They are deal
makers. They can help find the right operator or capital provider.
They know who to call and how to reach them. They are a major gateway of
hotel finance, facilitating the flow of capital with their legal skill,
hospitality industry knowledge and ability to find the right “fit” for
all parts of the capital stack. Because they are part of the very
fabric of the hotel industry, they are able to help clients identify key
business goals, assemble the right team, strategize the approach to optimize
value and then get the deal done. Jim is the author of the Hotel
Law Blog, www.HotelLawBlog.com.
He can be reached at +1 310.201.3526 or email@example.com.