|By Christopher Boyd, The Orlando
Sentinel, Fla.McClatchy-Tribune Regional News
Jul. 29, 2007 - Condominium hotels may go down as one of the briefest fads ever to sweep the real-estate industry as the market slumps in Central Florida -- only a year after it peaked.
Potential buyers are disappearing and financing commitments are falling flat, leaving condo-hotel developers with an uncertain future.
Last week, the first such hotel to open in downtown Orlando filed for bankruptcy protection, a failure the developer blamed on a rapidly changing market.
"Our sales were good in the beginning, but it got bad, bad, bad and then even worse," said Barry Greer, an owner of The Lexington at Orlando CityPlace. "The market was red-hot when we started this, but it folded up before we could close it out."
Greer said nearly 100 people placed deposits on rooms in the 227-unit hotel but then backed out. According to the bankruptcy filing, just 31 units were sold.
"Until the market improves, you won't see anything getting built," Greer said.
Condo hotels have lobbies and room service, and often are affiliated with well-known hotels. The difference is that instead of a single owner, condo hotels can have hundreds of them, each with title to a room or a suite. The buyers are often second-home owners who could use the rooms or suites as vacation homes, then allow the hotel to rent their units to guests at other times, creating income.
Plans for condo hotels rained upon Central Florida with the force of a summer downpour last year. Nearly 15,000 condo-hotel rooms were proposed, including two big resorts not far from the Orange County Convention Center.
Developers of both resorts -- The Blue Rose on Universal Boulevard and the InterContinental Resort & Residences Orlando at Palazzo Del Lago on International Drive -- say they are moving ahead, though neither has broken ground. In both cases, projected openings have moved from 2009 to 2010.
Other projects that were announced might never be built.
"We see Orlando as the Achilles' heel of the condo-hotel market," said Dante Alexander, president and chief executive officer of the National Association of Condo Hotel Owners, a group that represents both developers and buyers.
"It will probably take Orlando two or three years to come through this adjustment, and there will be project cancellations," Greer said. In May, Smith Travel Research reported that Orlando was second only to Las Vegas in the number of condo-hotel units planned or built.
Alexander said that during the real-estate boom that ended last year, homeowners tapped their equity to make deposits on condo-hotel units. But he said the market has disappeared this year as real-estate values have dropped and second mortgages have become more costly and harder to get.
"There is essentially no condo-hotel market left this year," Alexander said. "Eighty-five percent of the buyers were relying on second mortgages to buy their units, and that is gone."
Today, the projects that stand a chance are the ones that have it all, said Alexander. They must be new, have a plethora of resort amenities and be affiliated with well-known hotel brands to attract interest.
"The mad money is gone from the market," he said. "There are some projects at the upper end that are selling, but this is now a lifestyle buy."
Mark Lunt, a senior manager and practice leader with Ernst & Young Hospitality Advisory Services, said condo-hotel units are real estate, and interest in them has fallen with the unraveling of the real-estate market.
"Condominium hotels are an extremely risky asset class," Lunt said. "I think the market is falling apart in the condo-hotel sector in much the same way that it is falling apart in the condominium sector in general."
But some projects are moving ahead. Neil Scott, vice president of Floridays Resort on International Drive, said this condo-hotel resort is about to break ground on a 360-unit expansion after selling out a first phase.
"We have firm deposits on 20 percent of the units," Scott said. "These aren't investments. They are second homes."
Camilo Aguirre, a principal in the group developing the 1,300-room Blue Rose, said his company has taken deposits on 300 units. He said groundbreaking on the project's initial 817 rooms would happen later this year or in early 2008.
"We have tried to distance ourselves from the rest of the market," Aguirre said. "Sure, condos have slowed down, but there is nothing like the Blue Rose anywhere in Florida."
Jerry Krystoff, developer of the 1,215-room Palazzo Del Lago, said sales on his project are about to begin, and he said the project's affiliation with the InterContinental brand and a lakefront location should set it apart in a tough market.
"Hospitality is one of the bright spots in the real-estate industry," Krystoff said. "True, the condo-hotel product is hurting right now. You have to have a special product, and we have one."
Christopher Boyd can be reached at 407-420-5723 or firstname.lastname@example.org.
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