The condotel fuses defining characteristics of condominiums and hotels and creates a new property-type housed within a traditional hotel. In a condotel, individual buyers purchase the condotel units, which physically resemble traditional hotel rooms. When the condotel-owners are not in residence, they put their units into a rental pool. The hotel then is responsible for renting the rooms. The hotel and unit-owners split the proceeds. Although condo-hotel combination properties have been around for about 20 years, primarily in southern Florida, they were often developed in conjunction with unflagged -- or nonfranchised -- hotel properties. As a result, they had limited marketability and experienced limited popularity. While these properties have become more popular in the past four to five years, the relative newness of this market still affects the developer and the buyer. Indeed, condotels have many strengths and weaknesses. To analyze a prospective condotel property effectively and arrange the smoothest transaction possible, brokers should be aware of all aspects of unit and property ownership. Potential strengths Part of what makes the condotel a potentially lucrative investment for developers is the perks it offers the buyers of the individual units. Perks to buyers translate into greater unit sales for developers. A primary benefit to buyers is that condotels offer an alternate or vacation home without the full responsibility of a second home. In fact, because a unit-owner's time in the condotel is limited by the rental process, the property type is designed to be a secondary, not a primary, residence. The unit-owners also enjoy the hotel services provided by the hotel. Further, buyers can recoup some of their initial investments through rental revenue that is completely arranged by the hotel. Unit-owners typically receive about 50 percent of the total revenue attained through renting the room. This additional income helps with some of the expenses associated with the unit, in addition to some of the mortgage. For developers, condotels allow them to repatriate most of their equity. The profit is delivered upfront with the sale of the units. Developers can further make money with these property-types by maintaining ownership of the hotel's public spaces such as the bars, restaurants and meeting facilities. Top Ten Things to Consider When Buying a Condotel
- Desirable Location
- Price Comparison of Standard Condominium to Condo-Hotel Unit
- Property Management
- Annual Ownership Costs.
- Competitive Condition Sustainability
- Commercially Competitive Location
- Historical Rates and Occupancy of Competitive Hotel within the Market Area
- Specific Commission Structure, Deductions and Costs
- Ease of New Competition to Enter the Market
- Asset Management Utilization
As published in Scotsman Guide's Commercial Edition, October 2006.
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