The following article was reprinted from Vacation Ownership magazine, Winter 2004.

CONDO HOTELS:  OWNERSHIP, LUXURY AND APPRECIATON
A TREND WORTH WATCHING
by Joel Greene

What could be more perfect than owning a luxury vacation home at a world class resort and receiving rent revenue whenever you're not using it?  Condo hotels are the newest trend in vacation home ownership.  Live in it when you're there; rent it out when you are not.

So how do condo-hotels differ from owning a traditional vacation apartment or condominium?  These are not your typical second homes.  They are fabulously-furnished condominium suites in some of the most famous hotels and resorts around the country.  The properties are usually large, high-rise, luxury hotels.  Prices can range from $250,000 to over $1 million for prime properties.

When condo-hotel unit owners are not using their units, they have the option of putting the unit into the hotel's rental program.  This is what makes the program so attractive. While the developer doesn't guarantee the rental of the unit, by capitalizing on a hotel's name recognition, advertising, national affiliations, centralized reservation system and management expertise, unit owners typically receive a higher level of rental income than they would from a traditional vacation home.

As part of the rental agreement, the hotel pays for most operating expenses such as housekeeping, administrative and marketing.  The condo-hotel owner typically pays for real estate taxes, insurance and capital improvements.

Condo-hotel buildings are usually large, high-rise, luxury hotels operated by big names such as Four Seasons, Ritz-Carlton, Sonesta, Starwood, Hilton, and Rosewood.  Each condo-hotel unit is sold to individual investors who may use their unit for a specified amount of time, and when not used the investor has the option of placing it into an organized rental program.  Rental revenue is shared with the operator and helps defray the unit owner's expenses.

Sometimes condo-hotels are called "hybrid" because they combine an investment with second home or vacation home property.

These types of developments can offer enhanced financial returns when owners choose to place their units in a rental program.  The revenue from being in an organized rental program may help defray the owner's expenses.  During periods in which owners are not utilizing their units, the hotel operator manages the condo-hotel.

Unit owners are more likely to receive a higher level of rental income by being in a rental program with a recognized professional operator because of the hotel's national affiliation, its reservation system, brand recognition, and management expertise.

The original developer intends to sell the units; thus, features are generally added to enhance the appeal of units to potential buyers.  These include hotel features like spas, health and fitness centers, business centers and other amenities.

Many potential owners shy away from purchasing a condominium because they may not have as much use of it as they would like. As a result, the absentee unit owners shutter their units for extended periods. Although some unit owners seek to rent their apartments through local realtors, many do not, either because of the effort involved or the fear that the unit will not be available when they want to use it. The condo-hotel is suggested as the solution to this dilemma, giving unit owners a convenient way of managing the rental, yet insuring that the unit can be available when needed by the owner.

As an added incentive, many developments offer an expanded array of hotel services that are available to owners when they are in residence.  This could include the availability of valet, concierge and maid service.

Most condo-hotels are located in seasonal resort areas.  South Florida is one of the country's hottest markets with world-famous resorts like the Fontainebleau, the Ritz-Carlton Key Biscayne, Trump International and Four Seasons leading the way.

Who's buying a condo-hotel unit?  The answer, in a nutshell, is everyone.  That is, vacationers who appreciate the many wonderful amenities available at luxury resorts and investors who recognize the appreciation potential of a revenue-generating vacation home.  That appeal isn't limited to U.S. buyers.  The concept of condo-hotels has received international attention with buyers from Latin America and Europe competing with Americans for the best properties. 

Most condo-hotel units are purchased directly from the developer with or without the assistance of a real estate broker.  Because the inventory is limited, condo-hotel units have been selling at lightning speed, and prices have been steadily climbing as word spreads about their investment potential.

When it comes to the resale market, right now, nobody is selling.  Because the concept is so new, the resale market has yet to develop.  There are slim pickings for anyone hoping to happen upon a steal.  Most buyers are hanging on to their units, content to enjoy their luxury vacation homes while watching the value of their investment appreciate.

Condo-hotels have tremendous investment appeal in today's market because of low interest rates and a risky stock market that has investors looking for safer alternatives.  U.S. lenders have been readily making loans on condo-hotels, both to domestic as well as international buyers.  Investors who take the condo-hotel plunge can enjoy al the amenities of vacationing in a first-class resort while watching their unit's value significantly appreciate.

The best way to find out about condo hotel properties is to locate a real estate broker who specializes in the field or to call some of your favorite resorts to see if they have a condo-hotel program.

The condo-hotel concept has appealed to Latin American (Colombia, Venezuela, Brazil and Argentina), European and North American buyers.  Condo-hotels are often described by the term "apartotel."

Four years ago, Latin Americans flocked to buy units in the city's first condo-hotel, the 172-unit Mutiny in Coconut Grove.  The demand was so strong that the developer built a second building, the 224-unit Mutiny Park, managed by Sonesta International Hotels as a luxury resort.

Another success story is The Ritz-Carlton Key Biscayne.  Located five miles from Downtown Miami, it opened in mid-2000. Its 188 condo-hotel units in the 13-story beachfront resort and spa sold out a year before completion.  The condo-hotel units in The Ritz-Carlton have steadily increased in value each year.

Today, there are more than 20 condo-hotel buildings in South Florida, with more on the way.