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Individual Investors in Hotel/Condo Units
 Finding it a Formula for Making Money
By Jenny Burns, The Sun News, Myrtle Beach, S.C.
Knight Ridder/Tribune Business News

Jul. 10, 2005 - Chris O'Toole bought two oceanfront hotel rooms because it's cheaper and faster than waiting on a new condo tower to be built. Now, he's hooked.

He paid $110,000 each for the hotel-condo conversions in October. By March, other units like his were selling for $190,000 each.

"That beats the stock market," said the IBM business analyst in Durham, N.C. "My stocks are doing awful, but the property is doing fantastic."

Combine that price appreciation with the revenue of vacationing renters at Ocean Reef Resort, and O'Toole says you have a formula for making money.

Scores of other buyers think so, too, as condo conversions -- hotel rooms sold to individual owners -- are becoming the trend along the Grand Strand and nationally.

Mortgage bankers say only a kitchenette -- which includes a microwave oven, refrigerator and sink -- is required by Fannie Mae and Freddie Mac to make a hotel room into a condo.

"It's important so that people can cook, and sites for new buildings are limited, so [conversion] is a big thing right now. It's profitable for the owner, and it gives more people an opportunity to own a piece of Myrtle Beach oceanfront," said Penny Boling, president of Century 21 Boling.

The transformation is basically only a switch in ownership, where a building has many owners instead of one. But renovations are done to add value.

The Hoffman Group, Myrtle Beach's largest marketer of oceanfront condos, pioneered the hotel-condo conversion locally about two years ago.

President David Hoffman said price appreciation and a booming condo market have made it profitable for hotel owners to sell.

Hoffman attempted his first conversion, The Landmark Resort Phase One in Myrtle Beach, two years ago.

Since then, Hoffman has done seven others, each resulting in a more intense buyer demand.

"There was not a stampede [for The Landmark] like there is now," said Penny Martin with The Hoffman Group. "It took awhile for the buyer to understand the benefits. Literally, within a year it has gone from us asking people to buy to people asking us to sell."

The Hoffman Group is taking the hotel-condo conversion model nationally, expanding into Pigeon Forge, Tenn., Isle of Palms and doing research in western Africa.

"Now that we've done it profitably, everybody and his mother-in-law wants to do it," Hoffman said.

Smith Travel Research, the lodging industry's leading research firm, doesn't keep figures on the number of condo-hotels in the United States since the concept is so recent. But it's definitely a hot topic, said Jan Freitag, director of client services for the Tennessee-based firm.

He said hotel-condos can sell nationally for 20 percent to 40 percent more than a traditional condo because of the hotel name and location.

Buyers say benefits of buying already built hotel rooms are threefold: the hotels already have a built-up clientele of vacationers, it takes less than a year to own the place and the cost is pretty well set -- no surprise because of the rising cost of construction materials.

So how does a hotel room become a condo?

The legal transaction is only a change of ownership, but the physical transformation, which happens outside of peak tourism season, is usually a massive face-lift.

Some buildings are completely refurbished on the outside to give them an updated look, and rooms are renovated with a new interior and furniture. The size of the hotel room usually remains the same.

For example, The Breakers Boutique Resort at 2700 N. Ocean Blvd. in Myrtle Beach, was redesigned to look like an art deco boutique.

Resort Interiors Design added new furniture, iron poster beds, granite counter tops, carpet, accessories and artwork.

"We took a property that was kind of ho-hum and we made it so hot we sold it in 10 days," Hoffman said.

Richard Johnson, a Virginia investor, said he prefers buying hotel-condo conversions over existing condos because the building and rooms are refurbished, reducing extra fix-up costs to the owner.

"They refurbish them, so you are lowering your risk. All that stuff is being dealt with in advance," Johnson said.

Johnson retired from Wal-Mart management six years ago at age 40. He planned to put money in the stock market, but switched to the real estate market instead. He owns four oceanfront condos in Myrtle Beach.

"And thank goodness I did [switch to real estate] because the stock market has stalled and down there, there's a boom," he said.

His Breakers room has doubled in price in a year, his two rooms at Ocean Reef appreciated 75 percent and his place at Compass Cove is up 50 percent. He's selling the Breakers room, but plans to hold on to the two at Ocean Reef because he thinks the prices will rise even more after those rooms are refurbished in the fall.

O'Toole said he's glad he didn't have to wait to get his condo. The place he bought at The Vista took a year and half to close, he said.

And with new construction, he wasn't able to pick out the exact view he wanted like he did with his Ocean Reef conversion.

"You get a good idea of what you're going to get [with a condo conversion] and you get it a lot quicker," O'Toole said.


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Copyright (c) 2005, The Sun News, Myrtle Beach, S.C.

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