Jan. 27, 2008 - The idea of paying $1 million to own a hotel room for two weeks a year while hoping tourists would rent the room the rest of the time seemed elementary a few years ago.

Hotel developers thought so, confidently predicting sell-out dates in front of city councils excited by the potential hotel taxes and cache of a five-star resort that would otherwise need funding help from city coffers. The concept seemed to work in San Diego where all 420 condos in the downtown Hard Rock Hotel were sold in one day.

Today, the crashing economy has sent most condo-hotel developments packing and with it the potential for tax revenue and a draw for tourists. At one time there were at least five large condo-hotel projects proposed in the Coachella Valley. None have been built.

Developers, including the owners of the Riviera Palm Springs that is scheduled to re-open after $70 million in renovations by the end of the year, are opting instead to build hotels without condos.

The Ritz-Carlton in Rancho Mirage is sticking with the condo-hotel concept selling luxury spaces within its hotel, hoping wealthy travelers looking for a second home they can use for vacations will buy in. The hotel is scheduled to open later this year.

The concept gained buzz in the Coachella Valley when Remington, a Dallas-based hotel management company, announced it would build its first $280 million resort in Indian Wells by selling 265 condos starting at $900,000. Owners would be able to stay in the condos no more than two or three weeks each year. That was back in December 2005.

Then they left, returning investor down payments and leaving the land just as vacant as when they arrived in Indian Wells.

While condo-hotels seemed to flourish in Hawaii, Las Vegas and Miami, the trend of building a hotel by raising funds from individual real estate investors who own rooms they can use for a maximum of two weeks a year typically for hundreds of thousands of dollars, seems to have waned.

Remington raised $28 million in the first 60-days of announcing the project in Indian Wells according to the online biography of Jim Kleczewski, the former project manager for Remington's Las Montanas resort who is now a real estate agent in Arizona.

"It is not economical to build a brand-new luxury hotel from the ground up in conventional financing," said Robert Haiman, a senior vice president with the Remington Hotel Corp., when he presented the project to the Indian Wells City Council in 2005. "Selling the units is critical," Haiman said.

Haiman's assistant said by phone that everyone who had paid a deposit on one of Remington's condos received their money back.

Corrie Kates, the city's community development director, said he doesn't know if the land's owners still want to build a hotel at the site.

"The days of doing an unbranded hotel and using it as a financing mechanism are over," said Francis Wong, chairman and chief executive officer of the Genesis Hotel Development LLC based in Indian Wells, a hotel consultant and developer. "A condo-hotel is successful only if it works as a hotel first."

Relying less on the "if you build it, they will come" slogans and more on "if they're willing to pay $1 million each, build it," hotel developers in 2005 and 2006 argued that the only way to pay for a luxury hotel was by selling individual rooms as condos.

The ground has hardly been broken for the proposed Hard Rock Hotel in Palm Springs, the city still owns one of the parcels the developers need and now there's a lawsuit pending that claims the city gave too many concessions when it approved the plan.

Plus the city recently passed a tax-sharing ordinance that if the Hard Rock developers participate, the property won't be a condo-hotel at all anymore.

"A condo-hotel is not as valuable as a hotel," said Palm Springs City Manager David Ready.

A condo-hotel also became less economically feasible once the housing market soured, said Rob Eres, development manager for the hotel being built by Santa Ana-based Nexus Cos.

"When the housing market was hot, it was a great way to finance hotels," Eres said. "All of a sudden, it doesn't work a whole lot."

"Hotels are being built. Hotels will always be built," said Jan Freitag, vice president with Smith Travel Research, a firm that tracks hotel development, occupancy and rates nationwide. But condo-hotels are only working in specific markets where buyers are truly interested in living as a second home.

Even in Las Vegas where announcements of new condo-hotel towers had been almost a constant in 2006, at least one lauded project has been foreclosed on in mid-construction.

Gone are the days when a developer could expect people to pay 10 percent down on a pricey condo they could only use for two weeks out of the year in some circumstances and walk into a bank with cash in hand, he said.

"The party is kind of over," Freitag said.

CONCEPT SECOND HOME: SALES FLOUNDER IN MANY LOCATIONS

WHAT IS A CONDO-HOTEL?

A hotel where buyers can purchase individual rooms much like a traditional condo. Typically, an owner is allowed to only use the condo for two to three weeks each year. The rest of the time, they allow their condo to be rented to overnight guests and get a portion of what's earned. Sometimes a hotel is made up entirely of condos or a mix of condos and traditional hotel rooms. Either way, a hotel management company oversees all operations. Hotel amenities are available to condo owners.

Luxury hotel builders have favored condo-hotel combinations because it helps pay for the development, especially in areas with seasonally lower occupancy rates. For example the Coachella Valley is typically hard-pressed to fill rooms in the summer thus making it risky for lenders to fund a pure hotel.

WHAT IS A TIMESHARE?

Time at a hotel or resort, often in weekly increments, bought by travelers. The buyers don't own the real estate but can trade or sell their time to other travelers.

-----

To see more of The Press-Enterprise, or to subscribe to the newspaper, go to http://www.PE.com.

Copyright (c) 2008, The Press-Enterprise, Riverside, Calif.

Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.