Business Travelers Invest in Their Own Hotel Room

By Chris Woodyard
Reprinted from USA Today
September 21, 2004

Some business travelers walk into a hotel acting like they own the place. These days, they often do. A piece of it, anyway.

Faced with a tough market for financing hotels, some developers are selling – rather than just renting – rooms to guests, thereby making them condominium hotels.

Condominium hotels have long been available in resort destinations; now some developers are setting their sights on business markets as well.

“It is something that’s beginning to surface” in business markets, says Mark Woodworth, senior vice president in PKF Consulting’s hotel practice.

Buyers of hotel condo units can use the room when needed. When the owner isn’t around, management rents the unit as just another hotel room. Room owners share the profit, if any.

Condo hotels differ from time shares, which give buyers use of a property for a fixed number of days each year but not outright ownership.

Recent developments:

1. A Venezuelan businessman became the first owner to occupy a unit Friday at the luxury Conrad Hotel in Miami’s financial district.About 40% of the 116 units have been sold, says Bill Ross, president of developer Estoril. A 1,000-square-foot unit sells for about $500,000.
2. Robert Falor, CEO of hotel developer The Falor Cos., has acquired the 161-room Hyatt on Printers Row in downtown Chicago. He plans to rename it the Morton Hotel and sell rooms. He’s planning the same for another property in the Loop that is now used as an office building.

Benefits of ownership “A lot of our buyers are people who live in the suburbs of Chicago or surrounding states and come into Chicago on a regular basis,” Falor says.

He’s hoping to create a string of condo hotels in major cities. Most of the units will be priced at $225,000 to $400,000.

The Camelback Inn, a J.W. Marriott resort in Scottsdale, Ariz., has been a condo hotel since the mid-1970s. Four of the 413 rooms are for sale, priced from $128,000 to $170,000.

Owners are limited to 28 days a year in their own units. They share in profits that have averaged $5,475 annually over the last decade. Another benefit of ownership: They can apply unused days at Camelback to other Marriott hotels around the country.

David Bartholomew, a consultant based in Pleasantville, N.Y., owns two units at the Camelback Inn. The first he bought for vacations, the second as an investment.

The flexibility of applying unused time at other Marriotts is a major benefit, he says.

Joel Greene of Condo Hotel Center changed the focus of his family hotel-motel brokerage a few years ago to a specialty in condo hotels. Greene has sold about 90 units this year, up from just six in 2003, his company’s transition year. Most are in South Florida. He works through a Web site, www.CondoHotelCenter.com.

Greene says condo hotels can be attractive to business travelers because they provide a familiar space in frequently visited cities. Over the long run, they may be cheaper than paying regular room rates at a business hotel, he says.

As a real estate investment, he says, they allow “hassle-free ownership.” Owners don’t want their tenants calling them at 3 in the morning telling them a pipe has broken. At condo hotels, management handles such problems, he says.

Owners get to stay in a full-service hotel, often paying only for the services they use. They receive quarterly financial statements informing them about how much their unit was rented during the period and how much money they’ll get from it, says Greene.

But owners share some risks, too. A real estate market downturn could cut the value of their investment. Terrorist attacks, hurricanes, recessions or other perils could suppress travel and tourism, possibly eliminating income for a time.

Like Camelback, condo hotels typically limit the number of days that owners can stay in their units. Sometimes, local governments impose the limits during the approval process because condo owners aren’t paying hotel taxes during their stay, Greene says.

Limits also assure hotel management that owners won’t monopolize usage, blocking out paying guests.

Some owners never stay in their units, maintaining them as investments only.

Maintenance fees, property taxes and mortgage payments are offset by the income generated by condo hotels, Greene says. At Falor’s condo hotels, owners get a share of guest revenue generated by their own units. At the Camelback, revenue from guests is pooled and divided among owners by a formula, says Camelback’s June Durkin.

Since its opening, Camelback owners typically have seen about a 5% increase in the value of their units, Durkin says. She says values have declined about 9% since 2001.

A condo-hotel unit can be a solid investment, but owners must have reasonable expectations about potential returns, says John Fair, who is developing the Paraiso del Mar condo hotel in La Paz, Mexico.

The trend toward condo hotels is being driven by aging baby boomers with lots of equity in their homes who are looking for second properties, he says.

One potential owner is radiologist Barry Charnick of Golden Beach, Fla., who is looking to buy one or two units in Miami’s trendy South Beach and maybe one in Chicago that he can use when he travels on business.

Charnick says he likes the convenience of a good hotel combined with the financial benefits of property ownership.

Says Charnick: “I don’t have to worry about all the activities of daily living like making the bed and cleaning my clothes and cleaning the room. Because it’s a condo hotel, I can defray the cost.”