The Condo Hotel Trend is taking Over the Industry

The Condo Hotel Trend is taking Over the Industry

Traveling has become very expensive. The average household spends over $600 on a four-day domestic trip and about $3,200 to travel internationally for about 12 days. A majority of the money spent on both types on trips is spent on lodging and food. Eating out can be very expensive on a trip. Eating out for three meals a day can really make the budget of a trip skyrocket. There is a new trend emerging in the industry that is the answer to this issue.

The average cost per day for food that the average individual spends is about $37 per day to eat during a domestic trip.  That is a per person figure so for a four person family trip, it will cost over a $1,000 for a seven day vacation. Food costs on an international vacation will run about $50 per day for an individual.  With the rising price of airfare and the rising cost of food, people are looking to cut extra costs while on vacation.

Lodging is another huge expense for a vacation. The average lodging costs for a domestic vacation runs about $100 per day for a mid-range hotel.  International mid-range hotels run a little bit more at around $150 a day. Between the cost of food and lodging, people are finding it harder and harder to go on vacations.

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Due to the rise in all the additional costs for a vacation, there have been more and more condo hotels opening in cities around the world. These hybrids are starting to takeover the industry and companies like sbe Entertainment and the Marriott owned W Residence chain are building luxury condo hotels to cater to those looking for places to stay but also have the ability to enjoy the same amenities that most luxury hotels offer. These condo hotel units have the appeal of a fully stocked but the same allure and amenities of a luxury hotel.

The condo hotel is not a new concept. They started to crop up in the 1950’s and grew exponentially during the 1970’s. A tax loophole allowed condo buyers to write off associated condo expenses like property taxes and association fees. In 1980, that loophole was closed and soon development on condo hotels slowed way down. Florida was the first state in the United States that really experienced exponential growth in the condo hotel industry. There was a boom in building and developing these condo hotels but soon Florida experienced the same downturn.  Surprisingly, the condo hotel made a reappearance after the horrific 9/11 attack on New York. After the attack, the real estate market took a huge downturn, and the revitalization of the condo hotel afterwards was due to the fact that hotel owners were looking to recapitalize on their projects by selling the condo units.

The definition of a condo hotel is a building, which is legally a condominium but which operates as a hotel. They offer short-term rentals and maintains a front desk. They are usually high-rise buildings that operate as a hotel but also have condominium units that serve as full-service vacation homes that allow buyers to purchase one of the condo units with the option to rent the unit when not in use.   The units typically come furnished and the owners also get to enjoy all the benefits of the hotel amenities. These condo hotels are in typically in large cities like New York, Los Angeles and many more around the world.

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Not only do the condo hotels appeal to vacation goers but they also appeal to hotel developers. The main reason behind the popularity for these developments is that for those looking for new development opportunities can spread the financial risk amongst the condo owners. Secondly, condo hotels are considered Class A assets which are typically a safer bets when it comes to real estate speculation. Also, a condo hotel is usually attached to a big name hotel chain and already has brand name recognition.

Marty Collins, president and CEO of Gatehouse Capital, a Dallas-based national real estate and management firm told Multifamily Executive that, “It makes financing a project significantly easier if there’s a Four Seasons or a Ritz-Carlton or W [hotel]. People trust brands. They have more confidence.”

Considered the ultimate home away from home hybrid, there has been a huge influx of breaking ground on these types of vacation homes. In fact, there are so many new developments that a separate association was created to help provide tools and information to potential buyers to help them decide the best condo hotel for their vacation home.  The association, the National Association of Condo Hotel Owners, created a network where unit owners can find all costs associated with a certain property and information to help buyers to make a more informed decision when it comes to their purchase.

There are many financial considerations when deciding whether to purchase one of these units. The three main considerations when it comes to determining the financial success are rental revenue, whether the property will appreciate or depreciate, lending and tax deductions. Most condo hotel developments share the rental revenue with the unit owners and in return the owners typically don’t pay any upfront fees for management, marketing and independent reservations of the units. Most fees for the condo hotel units include what is referred to as the FF&E (the Furniture, Fixtures and Equipment fees) and the reserve and resort fees.

Like any real estate investment, the purchase of a condo hotel unit has no guaranteed appreciation of the investment.  The appreciation or deprecation value is based on traditional real estate market fluctuations. However, an overwhelming majority of branded condo hotels see double-digit growth and usually outperform traditional condos or single family homes in the resort market. Like any other form of real estate, it can be bought and sold.

Real estate development companies are starting to get involved again with the development of the condo hotel hybrid. Companies like Four Seasons and sbe Entertainment have all started to build up condo hotel developments over the last few years. These companies are creating luxury hotel and residences all over the globe and they are breaking the mold and building luxury vacation homes that are changing the face of the tourism industry. The newer developments are also changing the strict usage requirements in order to entice buyers.

The Four Seasons is one of the most well-known luxury hotel brands in the world.  The Four Seasons Private Residences are wholly-owned properties that are built by the Four Seasons with the same luxury design principles as their popular hotels.  The private residences, located in parts of the Americas, Middle East, Africa, Asia and the Pacific, and Europe, have become very popular due to their luxury designs and their access to the Four Seasons Services and amenities.

Due to the fact that the average cost to build a Four Seasons luxury hotel is in the ballpark of about $500 million. The Private Residences help to regain the initial capitol to build one of these properties.  According to Nick Cassini, the senior vice president of real estate and marketing for Four Seasons Anguilla in the British West Indies, “just renting out hotel rooms—even in a Four Seasons property with high rates—is a very difficult way to regain that capital.”

These types of private vacation homes are attractive to potential second or third residence buyers because of they are turn key, very well managed and because of their well known name, turn quite the profit when rented out. For example, the Four Seasons Resort and Residences in Anguilla offers a 5 bedroom beachfront villa for $10 million but daily rates start at $20,000 a day.

The Four Seasons is not the only company looking to capitalize condo hotel developments. sbe entertainment, a  privately held lifestyle hospitality company, tis currently managing and building  more of these private condo hotels. CEO of the company, Sam Nazarian, understands that condo hotels are not only the wave of the future but a better product overall.

He recently elaborated his thoughts on the hybrid to The Real Deal, the Los Angeles Real Estate news publication.  He said, “If done right, there’s a demand for urban residential integration with hospitality — it could be the future of residential. There’s the opportunity for developers to really have amenities that are relevant, whereas in a straight condo, food and beverage doesn’t really work. Having shared services between the hotel and residences, you’re going to get a much better product. The hospitality brands also add a lot of value to the residences as an expectation level of quality. It depends on the market and the product, but we’ve found through our development partners that they see 20 or 30 percent difference.”

Considered one of the leading lifestyle hospitality companies in the industry, sbe Entertainment CEO Sam Nazarian recently acquired the Morgans Hotel Group after a two year negotiation process.  This addition to their extensive portfolio has opened the doors to further development of their hospitality brand. The properties that are currently open, like the SLS Towers in Miami and the Hyde Brand in the Design District sold out within two weekends.

The condo hotel is considered by insiders of the industry the wave of the future in the tourism industry. They have the appeal of a condo but owners have access to all the amenities that a hotel has to offer.  Owners also have the option to rent out their units and use it as a way to make extra income or to cover the mortgage on the property. The typical amenities that these owners can enjoy include spas, health and fitness centers, fine dining, business centers and more. Services could potentially include valet, concierge and housekeeping. On site management helps to maintain the property and make sure that there are no issues. They address any maintenance or upkeep issues in a timely fashion.

The prices of a typical vacation is rising and there is no better way to cut costs than to either stay and one of those condo hotels or purchase one outright. For those who enjoy traveling to the same destination year in and year out, purchasing one of these units would not only save money but it could also serve as potential additional income. Hospitality companies are jumping on this trend and starting to create their own luxury condo hotel properties.

Although not for everyone, the condo hotel is the best choice for those looking to have a livable space during their vacation. The condo hotel is also ideal for a longer vacation stay. Whether you want to just stay for a few days or be an owner, these popular condo hotels are the best bet. It is important to research each property before a decision to purchase. This trend in real estate development is the next big trend in hospitality.

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