Author: Tara Peterson

May 23 , 2007

 

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What a condo hotel is and how they work

Condo hotels are one of the most exciting segments of the real estate market.  It seems like every month, another big brand like Trump or Ritz Carlton is developing a new condo hotel in a major resort or urban destination.

 

A condo hotel operates just like any hotel you might be familiar with.  The only difference is that each room is individually owned.  The paying hotel guest would have no idea that the hotel is a condo hotel.  From appearances sake, there is no difference.

 

As an owner, you take fee simple title.  So, you own it outright.  Just like you would own the home you currently reside in.  The difference is that you would have a highly skilled management team overseeing your property and handling all aspects of the daily operation and rental.   Condo hotels are designed for 100% hassle free ownership.  

 

Of course, as an owner of the condo hotel, your visit would likely entitle you to various benefits and first in line privileges not made available to the average guest.  You would be entitled to a truly remarkable visit.

 

Some have suggested that condo hotels are the best area of real estate to get involved with, short of commercial development.  To back up this statement, they point to hard evidence that is readily available – historical appreciation comparisons.  It’s not uncommon to find the property values of branded condo hotels appreciating at a greater rate than the traditional real estate in the same market.

 

One of the few downsides to owning a condo hotel is that most are not meant for residency.  A lot of condo hotels have usage restrictions that limit you to a couple of months of total usage throughout the year.  With that said, most people do not buy condo hotels with the idea of residency in mind, so this restriction rarely affects any potential buyer.

 

 

The Typical Person who owns a Condo Hotel

The Typical owner of a condo hotel can be segmented into one of two major groups: lifestyle enthusiast and investor.

 

Lifestyle buyers tend to purchase condo hotels at their favorite resort destination.  They love the idea of owning a fabulous property at their favorite destination, but they don’t want the burden of a second home sitting empty and draining them financially.  They also are attracted to the idea of their vacation home being fully managed by someone else and being cleaned and in order upon their arrival.  Additionally, because condo hotel ownership generally comes with major amenities and service benefits, the purchase makes even more sense.  These types of buyers are true resort enthusiasts and tend to visit their property 5-6 times a year. 

 

Investors, on the other hand, will buy regardless of whether the purchase fits their lifestyle.  If the property makes financial sense, that is all they need to justify the purchase.  For the pure investor, appreciation and cash flow are of paramount importance, with appreciation being the greater determining factor.  In addition, the opportunity to own a hassle free investment that is fully looked after by a professional management company is another highly valued attribute.

 

Many savvy real estate investors have achieved fantastic appreciation gains over the years from condo hotels and Continue to "buy whenever a premium property comes to market.  Some repeat buyers own upwards of 10 – 20 condo hotel units and look to add more every year.  They love the concept of purchasing at a lower price point during pre-construction and then selling at a higher price point once the property has been in operation for a few years.  In particular, most investors are drawn towards the name brand condo hotels, such as Trump, W, Hard Rock, Ritz Carlton, Westin, and the Four Seasons.

 

Incidentally, even among the buyers who would consider themselves investors, most stay at their property several times a year and enjoy taking advantage of the many benefits that come with being an owner.  However, it must be noted that this lifestyle component is secondary in their purchasing decision.  Ultimately, the decision to purchase is based off of their evaluation of the condo hotel’s ability to appreciate and cash flow.

 

Demographically, the age of the typical condo hotel buyer is what you would probably expect.  The average buyer is between the ages of 45 – 55, is married, has children still at home or in college, and has owned vacation property previously.  The typical buyer tends to be more affluent and views the purchase of real estate as an intelligent way to increase wealth.

 

With that said, different condo hotel projects do cater to different sectors of that demographic and this will cause slight fluctuations in those statistics.  Ritz Carlton’s, as you can imagine, have great appeal to older members of that age group and beyond.  W Hotels and Hard Rocks, along with their hip atmosphere, appeal to the younger members of that demographic, as well as to persons who have attained wealth at an earlier stage in life.

Condo hotels also appeal to buyers from around the globe. Europeans, South Americans, and Asians are all buying condo hotels in North America. They are competing with Americans for the best properties in the U.S., Canada, and Mexico.  In fact, Europeans and Asians have quickly emerged as one of the fastest growing segments of condo hotel owners in North America.  Aiding this trend is the weakened dollar.  The citizens of these regions have flexed their economic might in recent years and have shown exceptional interest in the condo hotel model.  In fact, half the units of Trump Waikiki, the most successful real estate project in the world, were sold exclusively to Asian buyers.

 

 

Condo Hotel vs. Condominiums

As previously mentioned, the form of ownership is the same.  As an owner, you take fee simple title.  So, you own it outright.  Just like you would own the home you currently reside in.

 

The management of a condo hotel can be quite different from managing a normal condominium or rental property.  The most striking difference is that you would have a highly skilled, and in some cases, world-class management team overseeing your condo hotel and handling all aspects of the daily operation and rental.   Condo hotels are designed for 100% hassle free ownership.   You don’t have to deal with leaky faucets or plumbing problems in the middle of the night.  The management team will oversee all of the details.

 

An additional difference is that most condo hotels are not meant for long-term residency.  In fact, many of the branded condo hotels do have stipulations on the number of days that an owner can stay.  These stipulations are in place to ensure that the property maintains its standard of being a hotel and not a place of residential living.  With that said, quite a few condo hotels do allow year round permanent residency.  It all depends on the specific project.

 

 

Financial Benefits of Owning a Condo Hotel

There are four major areas of concern when discussing the financial benefits of owning a condo hotel: rental revenue, cash flow, appreciation, and financing.

 

The rental revenue is shared with the professional hotel management company.  You pay no upfront fees for this management.  Instead, the management company takes a portion of the rental income that is generated.  Although the revenue splits between owner and management company do vary from project to project, most hover around the 50/50 mark.

Condo hotels are strategically located in luxurious resort settings and premier urban destinations, which command top dollar for the nightly stays and are almost always marked by high year round occupancy rates.  This combination of high nightly rental rates and high year round occupancy rates make it possible for some condo hotels to have a very desirable cash flow outcome.

 

In addition to the rental revenue that is generated, you can enjoy the appreciation that condo hotels typically experience, as well.  Many condo hotels, especially the branded condo hotels, have seen double digit growth, and have out performed traditional condos or single family homes in the same resort market.  A common question is whether condo hotels can be resold like normal real estate.  And the answer is yes.  Condo hotels are fee simple deeded real estate.  You buy and sell them just like you would any other form of real estate.

 

Another common question revolves around financing and whether favorable rates can be attained.  And the answer is yes.  You’ll find that the biggest financial institutions in the world make loans on condo hotels and they are typically quite close to a loan that can be found for a traditional vacation home.  Most condo hotel developers have even made arrangements with specific lenders so that they may offer their clients the most favorable rates.

 

And remember, there may be additional tax benefits of owning a condo hotel over a traditional condo.  If the condo hotel is used for non-primary residence or residential rental, owners may be able to accelerating the depreciation on their condo hotel unit from 39 years, down to 27.5, 15, 7, and even 5 years.  Be sure to consult with your accountant to see if the tax advantages can work for you.  If your accountant is not intimately familiar with condo hotels, have him refer you to an associate who is.

 

 

Luxury Hotel Brands are Increasingly Involved with Condo Hotels

In the last decade, all of the 4 and 5 star luxury brands have embraced the condo hotel concept.  Just a few of the premium brands actively offering condo hotels are Four Seasons, Trump, Westin, Hilton, W, Ritz-Carlton, Rosewood, and Hard Rock. It’s quite evident that the best in the hospitality industry have adopted the condo hotel as the future of vacation property ownership.

 

This trend of quality hotel brands taking the lead in the condo hotel boom should not be surprising.  The business model of condo hotels are a natural fit for a company looking to minimize risk and maximize revenue.  By selling off ownerships in the hotel in a pre-construction phase, developers are able to more easily acquire favorable construction financing from banks.  This can save hotel developers millions and millions of dollars and shave the number of years it takes them to pay back their loans to the bank.

 

The condo hotel model has clearly proven to be a financial windfall for hotel developers. The construction debt for a typical hotel project can run from 50 to 60 percent of cost. When the “condo hotel” element is added, the equity credits the developer can earn from condo hotel presales can provide debt financing approaching 90 percent loan-to-cost leverage.  This equates to millions and millions in dollars saved.  This allows developers to achieve significant front-end profits on the sale of condo hotels.  Lenders also like the condo hotel model.  They are more willing to finance condo hotels because they are banking on condo sales that come in the pre-construction phase.

 

Expect the trend of luxury brands building condo hotels to continue.  All the data that’s come in over the last few years continues to suggest that condo hotels are the hottest thing going in the hotel industry and that this form of hotel ownership provides the greatest potential for developers and other stakeholders in a new project.

 

The locations that most major brands are now honing in on are major urban destinations.  Many top brands already have condo hotels in North America’s major winter and beach destinations.  Now it’s a race to put up condo hotels in North America’s finest cities.  The major cities that have attracted the most attention are New York, Las Vegas, Miami, Chicago, and Los Angeles.  Within the next few years don’t be surprised to see every major 4 and 5 star brand with a condo hotel in the aforementioned cities.

 

 

World Class Management Teams Oversee Branded Condo Hotels

The luxury 4 and 5 star condo hotel operators consistently attract and hire the most experienced professionals in the hospitality industry. This will be the team working for you and overseeing your property.  They are established with a world-class track record in hospitality and hotel management.  They’ll ensure that your property is looked after properly.  They’ll also do all that they can to ensure that the occupancy rates increase year after year, and that the nightly rates Continue to "command top dollar.

 

The most obvious benefit of having a world-class management team overseeing your property involves the rental aspect.  At the top of most prospective owners minds is the area of rental management and the possible income that might be achieved.  As an owner, you’ll always have peace of mind knowing that the team managing the rental of your property has decades of experience and a massive infrastructure to guarantee that your property always commands top dollar and that everything possible is being done to attract guests.

 

Without question, it is the daily operation of the rental management team that makes it possible for condo hotels to be the ultimate hassle free rental property.  You can live and work in Los Angeles and buy a condo hotel in Miami that you use maybe two to four weeks a year.  Your rental management company will rent the room for you the rest of the time, when it would otherwise be empty, and this will help you offset some of the expense.

 

Another major benefit of having a world-class management team overseeing your property is that it means you won’t have to deal with the daily headaches that can accompany rental property ownership.  As anyone who has ever owned rental properties can attest to, rentals properties can often be a nightmare.  Many of the purchasers of condo hotels have owned multiple rental properties in the past.  These owners know all too well the hassle of receiving a call in the middle of the night from a tenant regarding a leaking pipe or some other unexpected issue that has to be resolved immediately.  The matter is only complicated if the owner lives out of state.  With the condo hotel, there will be no calls in the middle of the night for the owner to respond to.  The hotel’s management team deals with every detail and the owner never has to deal with hassles that traditionally come with owning a rental property.

 

 

How Condo Hotels Are Sold

Most condo hotels are initially sold pre-construction and through a reservation process.  A reservation generally consists of signing an agreement stating that you have an interest in learning more about the opportunity.  A reservation secures you the opportunity to attend a sales event and make a purchase if you choose to do so. 

 

Most reservations require a fully refundable $5,000 deposit.  By and large, you cannot attend the sales event if you do not have a reservation.  If you choose to make a purchase at the sales event, you generally put down a 10% deposit to secure the property.

 

A majority of the 4 and 5 star condo hotels sell out in the pre-construction phase. Typically, branded condo hotels sell out the first day that they are made available for purchase.  Some of the most recent examples of one-day sellouts are Trump Waikiki and the Hard Rock Hotel San Diego.  Trump Waikiki sold over $700 million in real estate in the first 9 hours they were made available.  Hard Rock Hotel San Diego sold over $300 million in the first 12 hours that they were made available.  Needless to say, many persons were not able to purchase.  Only those who put in reservations at the early stage of the development had the opportunity to make a purchase.

 

A common question is whether you can double escrow a condo hotel.  Some developers will allow this, but most do not.  In fact, most developers have it expressly written in the contract that if you open escrow on a property you must wait until you close before you will have the opportunity to put it on the market.

 

Once escrow has closed and an owner wishes to resell their property, they have all of the options available to them that they would if they were selling traditional real estate.  They can either try to sell it themselves or use an agent who works for Coldwell Banker, Century 21, or anyone else for that matter.  But, there’s an even better option.

 

As is often the case with higher end branded condo hotels, most will have a sales office in the hotel lobby or onsite to assist owners in reselling their property.  This is almost always the smartest way to go about reselling a condo hotel and it’s wise to take advantage of this resource.  The thousands and thousands of hotels guests staying at the hotel on a monthly basis are all prospective buyers and they’ll walk right by the sales office each visit.  You couldn’t ask for a more targeted amount of high volume foot traffic. 

 

Typical Costs of Purchasing a Unit

Pricing varies dramatically from condo hotel to condo hotel.  You’ll commonly find price ranges to be between $200,000 to over 1 million.  Typically, a branded condo hotel like a Ritz or a Trump will cost more than a non-branded condo hotel.  Most luxury 4 and 5 star condo hotels sell at an average of $800 to $1,300 a square foot.

 

Some developments will sell out their inventory over the course of two or three phases.  Pricing tends to be progressively higher each phase.  On some of the higher end condo hotels, you can see a price jump of 10% between phase 1 and phase 2.  And, of course, the difference between phase 2 and phase 3 can be equally substantial.  This is why you’ll often find real estate investors limit their purchases of condo hotels to the very first phase of the development.

 

If a particular property is having trouble selling its inventory or if the developer simply wants to move on to the next project, they might discount the properties in the final phase just to get rid of them.  Be a little wary of this.  Generally, it’s the non-branded condo hotels that do this.  It’s nearly unheard of for a sought after luxury condo hotel to partake in this practice.  If you do choose to buy a discounted condo hotel, you could be setting yourself up for a less than desirable outcome.  One of the main reasons people buy condo hotels is because there’s always the possibility of appreciation.  You don’t want to buy a property that is being discounted and depreciated from the moment it’s sold.  With that said, there are certainly times when it could be incredibly advantageous to pick up a developers discounted unit.  Just use your best judgment and be sure to get some good advice.

On occasion, some developers will sell their properties at a slight discount if the buyer is going to make a bulk purchase of 10 to 30 units.  This practice is desirable for all parties involved.  The developer has peace of mind knowing that they can unload a significant amount of property and it helps them get closer to their sales target.  The buyer, of course, gets to purchase a premium property at a discount and will realize these gains down the road when they resell them.  You’ll often find bulk purchases occurring in highly sought after 4 and 5 star developments.  Premium properties tend to attract heavy hitting real estate investors.

 

 

Costs Associated with Owning a Condo Hotel

Condo hotels have many of the same costs that you would find with the purchase of any other form of real estate. Typically, you have three costs.  You have your monthly mortgage payment, yearly property taxes, and monthly Homeowner Association Dues (HOA’s).

 

Your monthly mortgage for a condo hotel will operate in the same manner as a mortgage you might have for the residence in which you currently reside.  You obtain a loan, agree to all conditions and promise to make monthly payments, and then you make your monthly mortgage payments until the loan is resolved.  That’s it.  Just remember condo hotel loans are not saleable to Freddie Mac or Fannie Mae and therefore carry slightly higher rates and stricter loan qualification terms.

 

In almost all circumstance, yearly property taxes will be the exact same for a condo hotel as they will be for traditional real estate in the same area.  For example, if property taxes are 1.2% for a single family home, in all likelihood, the property taxes for a condo hotel in that same location will be 1.2%.

 

Every condo hotel will have HOA dues.  In addition, most condo hotels also have master association dues. These expenses will be assessed to all unit owners on a monthly basis.  The best part about condo hotel HOA dues is that they cover nearly everything.  HOA’s will typically cover all utilities: electricity, air conditioning, water, etc.  Most importantly, most HOA’s also cover the room reserves.  This means it’s highly unlikely that you’ll ever be faced with an unexpected cost that you’ll have to pay for out of pocket.  Other items covered by HOA’s are ground maintenance and common area maintenance.

 

All in all, condo hotels have all the costs that you would expect to find.  The fees of ownership vary only slightly from what you would find with traditional real estate.  Of course, owners of traditional real estate rarely have an HOA that covers all utilities and reserves for home repair.

 

 

 

Services Covered by Home Owner Association (HOA) Dues

Luxury condo hotels use the revenue generated by the HOA dues to maintain the property at the highest level.  Paying guests expect nothing but the best from 4 and 5 star hotels, and the HOA dues help ensure that nothing is unsatisfactory.

 

Although the services do vary from project to project, we’ve compiled a list of items that are often included and fully covered by the monthly HOA fee:

•   Individual hotel unit electricity, water, gas, sewer, and air conditioning
•   Common area electricity, water, gas, and sewer
•   Individual room reserves
•   Building reserves
•   Grounds keeping and gardening
•   Insurance coverage for common areas
•   Fitness Club use fee and maintenance
•   Security
•   Pest control
•   Mechanical equipment (i.e., elevator) service and repair
•   Fire/Alarm Systems
•   Parking use fee and maintenance
•   Window washing
•   Pool area maintenance
•   Snow removal
•   Budget and owner management and administrative services

 

Amenities & Services

Generally, condo hotels offer amenities and an experience above and beyond your average hotel.  As an owner, many condo hotels provide special privileges such as priority check-in at a VIP area, pre-arrival arrangements, first in line service at all dining establishments, priority access to poolside cabanas, etc.

 

As an owner staying at your condo hotel, you’ll find that management focuses a great deal of their time and efforts ensuring that your stay is seamless and all that you hoped.

 

The Locations Where Condo Hotels Can Be Found

Condo hotels are located in the finest destinations on earth.  Ski resorts, tropical settings, wine country, major cities around the world and more.

 

Condo hotels have been around for nearly three decades.  It all began in South Florida back in the early 1980’s.  The very first condo hotels sprung up in Miami Beach, and to this day, the largest concentration of condo hotels can still be found up and down the Florida coast.  In the early 1990’s, condo hotels began to appear in other regions of North America with greater frequency.  However, it wasn’t necessarily the beach destinations where most were showing up.

 

Many condo hotels were built in ski resorts.  Luxury destinations such as Aspen, Whistler, Vail, and Tahoe had immediate success with the introduction of condo hotels.  As we move forward through the first decade of the new millennium, condo hotels have begun to appear everywhere.  The best trend, of course, is the urban condo hotel.  With top luxury brands now getting involved, they’ve set their sites on major urban destinations such as New York City, Chicago, Los Angeles, and Las Vegas.

 

Many see the next major area of growth to be in Asia.  The citizens of these regions have newly acquired economic might and have already shown exceptional interest in the condo hotel model.  As previously mentioned, half the units of Trump Waikiki, the most successful real estate project in the world, were sold exclusively to Asian buyers.

 

Of course, no matter where condo hotels are built, you can still count on them appearing in locations that have several common traits.  First and foremost, because the primary purpose of a condo-hotel is to maximize revenue year in and year out, you can always expect to find them in high occupancy areas that have high nightly hotel rates.  If there’s a place in this world that has a nice mixture of high yearly occupancy and high yearly nightly rates, expect to find a condo hotel there within the next few years, if there isn’t one already. 

 

So, it seems quite clear that over the course of the next decade, condo hotels will appear any place that a nice mixture of high nightly rental rates and occupancy is met.  This means they’ll Continue to " appear with more frequency in major urban destinations, and of course, they’ll Continue to "be built in popular resort destinations throughout North America.

 

Please see Featured Properties for a complete listing of current condo hotels available throughout the world.

(http://www.premiumcondohotels.com/pages/featured-condo-hotel-properties.php)

 

 

Benefits of Owning Pre-construction Condo Hotels

As with most real estate transactions, those who get in early, get the most benefit.  Once a luxury 4 and 5 star condo hotel has been completed and is fully operational, it’s not uncommon for resale prices to have appreciated in the double digits.  All of this upward movement in price can occur in the course of only 18 to 24 months.  This has happened time and time again and it’s a major reason many investors have purchased multiple premium condo hotels in the pre-construction phase.

 

The most common cliché regarding pre-construction real estate is “You get to secure your purchase of tomorrow’s real estate at today’s prices.”  And while that statement may be passed around a little too often, it does capture the very definition of pre-construction.  You do get to buy the properties of the future at present day pricing. 

Your opportunity to purchase a condo hotel in the pre-construction phase is quite good.  Nearly all condo hotels are sold at pre-construction.  In fact, the very best condo hotels tend to sell out 100% of their inventory in the pre-construction stage.  Savvy real estate investors know that pre-construction pricing can be a bargain and that the property can sell for a great deal more once it is completed and fully operational.

 

As discussed earlier, some developers will space the release of their pre-construction inventory over the course of two or three phases and progressively increase the pricing with each phase.  On some of the higher end condo hotels, you can see a price jump of 10% between phase 1 and phase 2.  The reason developers do this is easy to understand.  Because they can.  And because it allows them to maximize their earnings.  If a developer is able to sell out their inventory in the first phase, it’s quite apparent that there is demand for what is being sold.  When faced with this high demand and limited inventory, pure economic theory allows the developer to push the price higher.

 

For the reason just mentioned, you’ll often find the most savvy of real estate investors purchase in the very first phase of pre-construction developments.

 

However, one should be very careful and incredibly selective when considering the purchase of a condo hotel.  In the last few years many pseudo investors have lost money by purchasing condo hotels with the idea of turning a quick buck in mind.  Not all condo hotels are the same.  If the condo hotel does not have a major brand associated with it, one should be more cautious.  The possibility of a Trump or a Ritz Carlton losing value is much less likely than a no name condo hotel.  With that said, if you find a non branded condo hotel in a prime location and it has all the indicators of a winning property, it can perform just as well, if not better, than a branded condo hotel.

 

In addition to being more cautious of non-branded properties, if the condo hotel is being built in a region that is saturated with condo hotels, be particularly weary.  This problem of saturation has afflicted the Las Vegas market in recent years and many condo hotel owners ended up purchasing a property that is worth less now than when they originally bought it.  The theory of supply and demand holds true for condo hotels, as well.  If there is a glut in the market place of condo hotels, you might want to think twice about purchasing.

 

You can register with Condo Hotel Property Alerts to receive advance notification on the newest pre-construction projects.

(http://www.premiumcondohotels.com/pages/property-alerts.php)

 

 

Drawbacks to Owning a Condo Hotel

As with all things, nothing is ever guaranteed and even the best things in life come with some drawbacks.  Although condo hotels appeal to many people and their benefits are plentiful, it’s always best to know the whole story.  Listed below are the major drawbacks to condo hotel ownership.

 

1) The condo hotel unit may lose value over time.   Just like traditional real estate, appreciation is never guaranteed.  This very scenario most recently occurred in Las Vegas.  Several of the more notable condo hotels have sold for less in the resale market than they did during pre-construction.

 

2) Local governments typically limit the amount of time owners may use their hotel room.  This is done to assure room availability for visitors.  In particular, you’ll often find limitations on the condo hotels located in cities.  The Hard Rock Hotel San Diego, for example, limits owner occupancy to just under a month.

 

3) Financing is generally costlier than for a primary residence.  Your rate may be a full point higher.

 

4) You will need to give notice that you’ll be staying in the hotel.   Condo hotels are located in major travel destinations and are often booked up well in advance.

 

5) You may not be able to use your room if it has been reserved by another guest.  The hotel may not be able to relocate someone from your room to another room – even if another room is available.

 

6) If you buy pre-construction, you may have to wait a year or two before the condo hotel is completed and ready for operation.  This means you won’t be able to stay in it the moment you buy it.

 

7) You might have to pay extra for daily housekeeping and other services when you’re staying at your place.

 

8) There will be a monthly homeowner association fee.  Although this is hardly uncommon for anyone familiar with condominium real estate, just be aware of all your potential costs.  Some condo hotels can have low monthly HOA’s and some can be exceedingly high.

 

9) Rental income from hotel guests is at the mercy of travel patterns and may decline.  Rental income should always be viewed as an added benefit and never something to be counted on.

 

10) You may have to buy extra insurance to protect against liability claims and some types of damage or loss.

 

11) Not all condo hotel rooms have storage lockers, so you may not be able to keep any personal possessions in the very room that you own.

 

Why Your Condo Hotel Sales Agent Can’t Discuss Rental Income

At no point in the sales process of a pre-construction condo hotel may a sales agent discuss any aspect of rental income.  In fact, not a single piece of information provided in connection with the sale may emphasize the economic or tax benefits of the rental program.  This has proven to be a point of major frustration for many potential purchasers. 

 

The laws are very clear.  A developer will get into massive trouble with SEC securities laws if he promotes the "investment" nature of a pre-construction condo hotel.  And any sales agent who discusses a pre-construction condo hotel as an investment will lose their license and will no longer be able to practice real estate.

 

In fact, the only statement that a sales agent can provide to a prospective purchaser is a generic statement to the effect that "ownership may include the opportunity to place your condominium in a rental arrangement." 

 

If a pre-construction condo hotel is sold as an investment and the developer wants to tout the benefits of the rental program, then the property must be registered with the SEC and every other appropriate securities regulatory agency in the United States.

 

So, why not sell condo hotels as a security and avoid the headaches and restrictions that developers and sales agents currently deal with?  Most developers consider securities compliance as being too expensive, far too time consuming, and poorly suited to the practice of selling real estate. Additionally, they would be forced to only sell their property through registered securities brokers and salespersons.  Making the matter even more difficult from a sales and marketing standpoint, the developer would be prohibited from public solicitation of customers.  Additionally, any misstatements or omissions of relevant information can equate to a securities fraud.

 

The irony in all of this is that by forcing developers to avoid security status, the potential buyer is deprived of rental projections and occupancy rates needed to help get an understanding for potential cash flow. This makes it infinitely more difficult for the buyer to make a fully informed buying decision.  It also tempts aggressive salespeople to provide the information on the side, which if ever discovered, would turn the entire real estate transaction into an illegal offering of a security and criminal penalties would follow.

 

Fortunately for the prospective purchaser, there is a way to get more information before they commit to such an important purchase.  Many condo hotels will refer the more serious buyers to their rental management division.  The rental management staff can provide potential purchasers with the rental history of comparable properties.  The information obtained is often more than enough for the prospective buyer to gain enough understanding of where the property might perform from a cash flow stand point. 

 

 

Have an Experienced Agent Represent you in Your Purchase

Not all condo hotels are the same.  Just as in traditional real estate, an experienced agent can assist you in your purchase and ensure that you make an intelligent buying decision.  When considering a condo hotel purchase, make absolute certain that you have the very best representation.

 

If you’d like, we can assist you.  It costs you absolutely nothing to be represented by Premium Condo Hotels.  The developer selling the property pays all of our fees.  So, if you’d like peace of mind and ensure that you get the best representation possible, give us a call.

 

Among our services:

•     Provide you with detailed information on any and all properties you’re considering
•     Prepare property and market comparisons
•     Provide insight into the developer, the management company, and the hotel’s brand
•     Ensure you receive the best possible price and selection
•     Ensure the buying process is straightforward and without any hassles