Hotel Online  Special Report
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The Global Hospitality Advisor

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When is an "Apartment" 
a "Hotel" ... and Who Cares?

Lines between housing and hotels are blurring. "Evolution and convergence are the keys!" said Monica Witt, JMBM attorney focused on land use, entitlements and government practice. She is referring to evolution and convergence of all-suite, extended stay hotels on the one hand, and corporate apartments on the other.

Why the Distinction is Critical. 

This phenomenon has many cities in an uproar. Apartments are often easier to entitle, are free from transient occupancy and related taxes collected from hotels that feed many hungry municipal treasuries (often running from 15% to 20% of room revenues), and may satisfy government requirements for housing units.

Corporate apartments may also qualify for development incentives such as increased permitted building height, number of stories, and floor area ratio, exemptions from environmental review and discretionary approvals, and relief from onerous development requirements such as guest parking, kitchens, private open space and, in mixed-use projects, separate and secure access.

While developers may relish developing hotels in areas that were previously inaccessible to them for zoning reasons, many communities now assert that corporate apartments are essentially commercial uses which introduce a transitory nature into established residential neighborhoods. Further, under many state laws, every community is required to satisfy housing quotas or "fair share" requirements. Many communities have used corporate housing units to satisfy their fair share requirements, only to realize that there is a possibility that the State will not recognize those units as "housing" and will require the community to replace those credits with "true" housing units.

A "Real World" Practical Case. 

We caught up with Monica as she was leaving a city council meeting fighting for an all-suite hotel client. "He jumped through all kinds of hoops to get his entitlements as the last hotel to be approved in the 'beach overlay' district of this city." Monica said. "But then the city approved several 'apartments' that are virtually indistinguishable from his hotel - they offer most of the same services and amenities as any hotel, and market themselves in a similar fashion. But the apartments don't have to bear the taxes, labor, and other burdens a hotel must carry. This gives the 'apartment' a significant cost advantage over the all-suite hotel - it can offer 'rents' much cheaper and does not support the city like our client's all-suite hotel."

The City is concerned too. "It needs 'housing units' to satisfy its State-mandated 'fair share' requirements." Monica says, "The City gave development bonuses, approved the 'apartment' in a residential zone that was closed to all hotel development, gave up transient occupancy taxes that would have applied to a hotel, and suffers the greater municipal support and costs incurred with a commercial property disguised as a residential housing."

Some of the evidence produced by Monica in arguing her client's case were ads by the competing properties. Some of the "by-the-month-only" apartments now rent by the night or a 3-night stay. "Many ads in travel magazines tout that 'You will not be able to tell the difference between this apartment and a luxury hotel - the only difference is the name.' And please tell me why corporate housing is being advertised in a travel magazine!"

Another example, Oakwood Apartments - one of the best-known providers of corporate housing - offers a lodging product called the Oakwood Residences, which are advertised as "combining the spacious comfort of a private home with the services and security of a hotel....including a 24-hour front desk, airport pickup, daily housekeeping and onsite restaurant."

Urgent Re-examination for All Concerned. 

"With the explosion of both all-suite extended stay hotels and corporate apartments in the past few years, the lines have blurred. Everyone is re-examining the traditional tests for determining what is what - length of stay, control over the room, services offered, and other factors. Hoteliers are fighting unfair competition. Cities are recovering lost revenues and housing credits, and smart developers are making this analysis a critical part of their due diligence.

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Monica Witt assists JMBM Global Hospitality Group clients with issues related to governmental approvals, licenses, land use and entitlement matters. For more information please contact her at 310-785-5329 or [email protected]

The Global Hospitality Group(r) is a registered servicemark of Jeffer, Mangels, Butler & Marmaro LLP

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For more information:
Jeffer, Mangels, Butler & Marmaro LLP
web site: http://www.jmbm.com
Email Jim Butler at [email protected]
Or contact 
Jim Butler at the Firm
 Jeffer, Mangels, Butler & Marmaro LLP
  2121 Avenue of the Stars
 Los Angeles, CA 90067
     Phone: 310-201-3526 
The premier hospitality practice
in a full-service law firm
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Also See: Richard Kessler's Grand Theme Hotels - Interview with GHG Chairman  Jim Butler / March 2001
Stephen Rushmore's  Industry Trends / Top Markets, Predictions & Opportunities  / Jan 2001
Outlook 2001: A Roundtable Discussion The Global Hospitality Advisor / Jan 2001
Perspectives on Hotel Financing in 2001; Jim Butler, JMBM's Global Hospitality Group Chairman, Interviews Two Active Players in Hotel Finance / Jan 2001 
Robert J. Morse: Millenniumís New President / Interview with GHG Chairman Jim Butler / Nov 2000 
Special Reports / Jeffer, Mangels, Butler & Marmaro LLP

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