News for the Hospitality Executive |
Condo Hotel Lawyer: What is happening with the condo hotel sector?
By
Jim
Butler
and the Global Hospitality Group®,
Author of www.HotelLawBlog.com April 29, 2011 For
the most recent update on this topic, click here Hotel
Lawyer with more on the long-term future of condo hotels. Condo
hotels have not been in the news for some time, and as hospitality
transactions
heat up, many are now wondering how and when this niche product will be
resurrected. Phil
Hall of MortgageOrb asked some excellent questions about the condo
hotel sector
and our interview, titled Jim Butler Checks Out the Condo-Hotel Niche,
published in MortgageOrb's
Person of the Week column, is reprinted below. Jim Butler Checks Out The
Condo-Hotel Niche IN
FROM THE ORB > PERSON OF THE WEEK Reprinted
with the permission of Zackin Publications. PERSON OF THE WEEK: In concept, condo-hotels represent
the best of both
worlds (in this case, the worlds of residential and commercial real
estate). In
reality, however, this niche sector experienced the worst of both
worlds during
the economic crisis. But with commercial real estate recovering at a
faster
pace than residential real estate, how will this niche respond? This
week,
MortgageOrb speaks with Jim Butler, chairman of the Global Hospitality
Group at
Los Angeles-based Jeffer Mangels Butler & Mitchell LLP, on the
near-future
of condo-hotels. Q: For the benefit of those who
are not familiar with the concept, what
is a condo-hotel? Butler:
The
"condo-hotel" phrase
was widely used to apply to different types of hotel mixed-use
projects. At one
end of the spectrum were projects intended to be operated as hotels,
where the
hotel had few or no dedicated hotel rooms, and individual owners of
condominium
units agreed to arrangements by which their condo units were treated as
part of
the rooms inventory of a hotel. At the
other end of the spectrum were hotel projects with complete dedicated
hotel-room inventory owned by the owner of the hotel, and additional
for-sale
condominiums that might - or might not - be added to the rooms
inventory,
through the hotel or otherwise. And, of course, there were lots of
variations
or combinations of different residential, time-share or fractional,
entertainment, restaurant, spa and related components in other projects. I
prefer the term "hotel mixed-use" for projects that combine a hotel
with condominium or residential and other uses, and I use the term
"condo
hotel" for the first type of project mentioned where some or all of the
intended room inventory consists of condominiums sold to individual
owners. I
refer to the other end of the spectrum - where for-sale condos or
residential
units have been sold and are not intended to be a critical part of the
hotel-rooms inventory - as hotel condos. Q: How would you categorize the
overall state of the condo-hotel sector? Butler: With a few notable exceptions, almost
any project
involving a condominium component has been in deep hibernation since
the
financial meltdown. Hibernation, as you may recall, is an altered
metabolic
state that certain animals assume to survive long winters. They may
actually
appear dead if discovered in this state, and it takes a while for them
to
recover from this state to even a dazed wakefulness. It is not like a
normal
sleep, where they are easily awakened or metabolic functions are near
normal
levels. For
hotel mixed-use projects with condominiums in either a condo-hotel or
hotel-condo structure, the key thing in the coming months will be
determining
whether the project is hibernating or whether it actually died of
hypothermia
during the big financial freeze-up. The conditions can be difficult to
differentiate initially. Q: What impact did the recession
have on the condo-hotel sector, compared to on the overall hospitality
sector? Butler: The hotel industry suffered its worst
downturn in modern
history, with net operating income dropping almost 48% virtually
overnight. It
has now stabilized, and fundamentals - as well as values - are
improving. The
condominium component of hotel mixed-use projects did not just fall by
40% or
50% - it stopped selling, or being financeable. Existing consumer
contracts to
buy the units fell out or, more often than not, defaulted. Construction
funding
locked up as Lehman Brothers filed for bankruptcy, banks were seized,
and
consumers were worried about whether they would still have jobs, much
less
whether they needed second or third homes. Q: As the economy begins to improve,
will the condo-hotel sector be able to improve along with it? Butler:
We believe
that hotel mixed-use
projects are an enduring and viable part of the landscape, but it will
take
some time for the condominium part of the equation to become viable
again. As
with all hotel projects, the viability will depend on a lot of factors,
including location market segment, regime structure, amenities and
value
perception, consumer financing, and other factors. The
good condo-hotels and hotel-condos will awaken from their hibernation.
The ones
that froze will thaw and decay. ________________________
We
have said for many years that condo hotels have earned an enduring
place in the
landscape of hotel and real estate development. But these kinds of
mixed-use
projects are complex and must be approached knowledgeably. If you did
not see
it, my partner Catherine Holmes contributed a very interesting blog
article
recently on the dismissal of a lawsuit filed against the developer,
broker and
lender of a condo hotel project, the Hard Rock Hotel San Diego. To
read that article go to: ________________________ This is Jim Butler,
author of www.HotelLawBlog.com
and hotel lawyer,
signing off. We've done more than $60 billion of hotel transactions and
have
developed innovative solutions to help investors be successful in
bidding for
hotel acquisitions, and helping investors and lenders to unlock value
from
troubled hotel transactions. Who's your hotel lawyer? ________________________
Our
Perspective. We
represent hotel lenders,
owners and investors. We have helped our clients find business and
legal
solutions for more than $60 billion of hotel transactions, involving
more than
1,250 properties all over the world. For more information, please
contact Jim
Butler at [email protected]
or 310.201.3526. Jim
Butler is a founding partner of JMBM and Chairman of its Global
Hospitality
Group®. Jim is one of the top hospitality attorneys in the world.
GOOGLE
"hotel lawyer" and you will see why. JMBM's
troubled asset team has handled more than 1,000 receiverships and many
complex
insolvency issues. But Jim and his team are more than "just" great
hotel lawyers. They are also hospitality consultants and business
advisors. For
example, they have developed some unique proprietary approaches to
unlock value
in underwater hotels that can benefit lenders, borrowers and investors.
(GOOGLE
"JMBM SAVE program".) Whether
it is a troubled investment or new transaction, JMBM's Global
Hospitality
Group® creates legal and business solutions for hotel owners and
lenders. They
are deal makers. They can help find the right operator or capital
provider.
They know who to call and how to reach them. JMBM’s Global Hospitality Group® The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com. |
Contact:
Jim Butler
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