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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