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What Are Condo Hotels or Condotels? A Primer

by Joshua Dorkin on August 3, 2006 · 12 comments

  

Lately, we’ve gotten a ton of questions at BiggerPockets about a relatively unknown area of real estate investing, Condo Hotels or Condotels. In an effort to help understand what exactly these things are, we contacted Joel Greene, President of the Condo Hotel Center, a brokerage “specializing in selling condo hotels in the pre-construction phases,” and Condo Hotels Dubai. Mr. Greene was more then happy to answer our questions, allowing us to conduct an email interview while he was on vacation.

BP:
What is a condo hotel or condotel?

GREENE:
Think of it as buying a condominium, although one that is part of a 4 or 5-star hotel. Therefore, as an owner, when you are on vacation, you will get the benefit of more 4-5-star services and amenities than you’d get in a typical condominium.

The big difference between a hotel and a condo hotel is that a hotel typically has one owner, either individual or corporate, but condo hotels are sold off unit by unit. Therefore, a 300 room condo hotel could have as many as 300 unit owners. A hotel guest will likely never know that the hotel has tons of owners because every room in the rental program will look identical to every other.

Condo hotels are sold as second, third, fourth or fifth homes, for that matter, but they are not typically sold as primary residences. In fact, many of them limit the unit owner’s usage of the unit because their unit is wanted and expected to be included in the hotel’s inventory of rentable units.

As the owner of a condo hotel unit, you may place your unit into the hotel’s rental program where it will be maintained and rented out for you, just like any other room in the hotel. As owner, you receive a share of the revenue that the rental of your room generates.

BP:
What are the advantages / disadvantages of purchasing a condotel over purchasing typical rental properties?

GREENE:
Advantages:

1- Hassle free ownership; no landlord issues.
2- Rental revenue to offset some or maybe all of your ownership expenses.
3- A fantastic vacation home you can use whenever you want.
4- A safe real estate investment in a day and age where other investments may seem more risky or less attractive.
5- Strong likelihood of appreciation.
6- Pride of ownership–“I own a piece of a Trump.”

Disadvantages are few unless the buyer has unrealistic expectations of cash flow. The reality is there may or may not be any.

1- Your pets are not always welcome.
2- Your unit may not be available on short notice, so reservations of your own unit may require as much as 60 days notice.
3- Your unit is subject to the same dips in the market that affect all hotels in the competitive market set. Hurricanes, terrorist threats, warm winters up north, price of gas, etc. can affect your unit’s occupancy rate. For this reason, most lenders will not consider the potential revenue when considering making the loan to you.

BP:
Are these properties difficult to finance?

GREENE:
Not at all, but they do take 20% down typically, whereas condos can be purchased with less cash down. It’s also important to make sure you use a mortgage broker who has had success in getting condo hotel financing deals done. Many banks still do not do them, but more and more are getting involved as condo hotels become more widely available.

BP:
How long have they been around?

GREENE:
Several decades, but the huge surge of 4- and 5- star condo hotels that have been making their way across the country, started about 7 years ago in the Miami area.

. . . to be continued . . . What Are Condo Hotels or Condotels? An Interview with Joel Greene – Part 2

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{ 10 comments… read them below or add one }

Joel Greene August 9, 2006 at 1:23 pm

I just saw your entry that you had emailed our site, but I show no record of receiving any emails from you. If you want to chat, try my direct email above or call me anytime, 954-450-1929. Joel Greene, President, Condo Hotel Center.

Reply

Vickie Gill August 11, 2006 at 9:28 am

Mr. Greene, I have a very large problem and wondering if you could help. I need a speaker for a conference that is attended by Real Estate Appraisers. The majority of the appraisers attending are MAI. The person that I had lined up for this conference has had a medical problem that prohibits him from speaking to us about Condo Hotels. The date of this conference is NEXT WEEK, August 18, 2006. Would you be interested in coming to California and speaking to us? Please respond ASAP.

Thank You in advance for time in this matter.

Vickie L. Gill, SRA
Chairperson
Southern California Chapter of the Appraisal Institute

Phone: 949-863-6409

Reply

jimmy November 14, 2006 at 1:31 pm

This article was very intresting! Is there any recommendations of books to read and/or about how/where to get financed. The recent article in CNN money about the area I live in, (panama city, Fl), and my desire to own one more property besides my homes in IL and AZ on a budget not well suited to succeed. Thinking condo would be great, but how to is the question? Also, is it better to buy a townhome right across the street from a condo? Many questions but wish to learn to succeed!

Thanks,
Jimmy

Reply

Dana November 16, 2006 at 1:51 pm

Jimmy,

If you are looking to learn about condo hotels, just go to Mr. Greene’s website, http://www.CondoHotelCenter.com. He’s got tons of good information on there. I’ve been reading his FAQs and many articles. And you can see what condo hotel properties are available too.

I tried to find a book on condo hotels at Barnes & Nobles, and there doesn’t seem to be one yet. I think your best bet is the web.

Dana

Reply

peter September 29, 2007 at 11:23 pm

BP:
Are these properties difficult to finance?

GREENE:
Not at all, but they do take 20% down typically, whereas condos can be purchased with less cash down. It’s also important to make sure you use a mortgage broker who has had success in getting condo hotel financing deals done. Many banks still do not do them, but more and more are getting involved as condo hotels become more widely available.

I like this section. in some part, mortgage broker do more than bank.

Reply

Nancy December 28, 2007 at 7:41 am

Are there any condotels for sale in the Los Angeles area?

Reply

steve jennings April 13, 2008 at 3:25 am

One of our projects is a condotel ‘The beaches Resort & Residences and is offering a 6% return for 5 years. So they do seem to be the favored form of overseas investment as well reputable hotel chains offer to manage them for the investors.

Reply

Susan September 23, 2008 at 3:28 pm

This is very interesting. I hadn’t heard of this before. It would appear that the real estate advantages far outweigh the disadvantages, especially in a market such as this one.

Reply

Lance September 29, 2008 at 10:45 am

Jackson Hole has several Condotels. There is a few in Teton Village. I believe that Hotel Terra, Teton Club, Crystal Springs, Teton Mountain Lodge are all Condotels. There is also a good one in Victor Idaho called Teton Springs.

Reply

Jackson Hole Real Estate Blogger October 27, 2008 at 2:13 pm

I am very familiar with the condotel model as I sell real estate in Jackson Hole and we do have condo/hotels in Teton Village . It is going to be very interesting to see how well the condotels hold up in upcoming (or current) recession. Many of the properties that I have done historical roi numbers on have not “penciled out” well. Not that i ever would sell them as an investment based on future speculation.
Great Blog.

Reply

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