Real Estate
Investment
What is a Condo Hotel?
Condo
hotels have come to be one of the hottest products in today's real estate
market; with new real estate properties cropping up in different parts of
the country and new buyers are entering the market daily, things have been
moving very quickly in terms of condo hotels, but sometimes it is worth
taking a moment to step back and take a look at the big picture.
There is increasing
enthusiasm about the condo hotel concept. More people are recognizing its
potential and therefore creating a larger demand for more
inventory.
The average Condo
Hotel Buyer has been seen to be 35-50 years old. For instance, buyers for
Florida properties, where condo hotels are most common, come from all over
the United States of America. On the international front, most foreign
buyers interested in U.S. condo hotel property are from South America and
Europe.
The vast majority of
buyers want condo hotel units primarily as investments and are focused on
the potential for appreciation in price with the attractive side benefit
of hassle-free ownership. They see the ability to actually use their condo
hotel unit as a vacation home yet only secondary to their goal of
investment diversification.
Virtually every single
property that has come into the market till date has sold out while still
in the pre-construction phase. Most of these real estate properties are
mega high-rise buildings with on average 200-500 units, and with some even
more than 1,000 units.
The speed at which
these properties sell out is often as surprising to buyers as it is to the
developers themselves. Usually properties that are estimated to take years
to be sold out can get taken in a few as a few months. For instance, while
the MGM Grand in Las Vegas, a 576-unit condo hotel, was expected to sell
out in two years, it in reality sold out in two months as was the
Platinum, a 255-unit property in Las Vegas, which was also sold out in
just a matter of a couple of months.
Hot Areas for
Condo Hotels
South Florida
continues to be an extremely popular area as regards condo hotels and one
that has shown strong and steady appreciation. As already mentioned, the
condo hotel trend which began in South Florida has now spread out to the
west and Las Vegas is leading the pack with many new condo hotel
developments in all price ranges being built.
Looking at South
Florida, it's easy to get a grasp of what is happening. Miami Beach which
is the hottest area is already completely built up and there just isn't
any undeveloped land. This in turn is causing the developers to head to
the northern end of Miami Beach also called North Beach and areas still
further north such as to Sunny Isles and Ft. Lauderdale.
One of the new trends
is in terms of developers buying existing structures in Miami Beach and
either upgrading them, as in the case of The Mimosa which was the former
Brazil Motel, or else knocking them down and starting over, as in the case
of One Bal Harbor in which a multi-family, high-rise building called
Harbor House was demolished and a five-star condo hotel built in its
place.
Some real estate
properties are also beginning to crop up inland. These condo hotels may
not have oceanfront views; however, they are within a few short blocks of
the beach. Since they are not on the ocean, these properties tend to be
priced more economically.
The most popular condo
properties continue to be those with a franchise name, or one that brings
a reputation for four to five-star qualities or else a name that is
already well-known. A good example for this is the Canyon Ranch Living in
Miami Beach; people recognize the Canyon Ranch name and feel confident
that this property will be of the same five-star caliber as its Arizona
counterpart. Of course, it is welcome to have a 60,000 sq. ft. rooftop spa
and fitness center.
A lot of condo
properties take reservations of more than half the total project amount,
long before they have even prepared their purchase contracts. This implies
that many of the best units are reserved months before any money changes
hands and often before even the first spade of ground has been turned over
and these early investors usually see some amazing appreciation on their
investments.
Condo
Prices
Similar to anything
for which there is more demand than supply, the prices keep going higher
and developers often raise their prices 3-5 times from the time they start
selling the unit and until they sell out.
So huge is the demand
that developers are no longer discounting prices at the beginning of the
selling process which is when they are normally anxious to get a few sales
under their belt. This used to be common practice but is no more so
because the demand is so great.
There are sometimes,
certain price adjustments that are made at the very tail end of the
sellout phase when developers want to close out their property and move on
to their next project. However, generally speaking, with regard to price,
the best time to get in is usually early on in the first pre-construction
offering to avail of the best prices.
Quality of
Condo Hotels
Most condo hotels that
are being built are of four to five-star qualities of services. The reason
is two-fold:
1) First, there is
demand for the types of services provided by these four and five-star
properties
2) Oceanfront land is
so expensive that it makes more sense for the developer to put in a luxury
property with units that he can sell at a premium price rather than go for
lower priced units.
Financing for
condo properties
As days go by it is
getting more and more trouble-free to get condo hotel financing. There was
a time when most banks and mortgage companies were not even familiar with
the term condo hotels, however, they now know it and also recognize the
viability of these properties. They are more accommodative in expediting
these loans hence.
Contracts on
condo properties
Contracts that allow
interchangeability have now become rare. In the past, some properties
buyers could place a deposit on a unit in the pre-construction phase and
then flip their unit prior to the time when they had to close the deal.
Developers now want to be sure that they don't need to compete with their
early investors to sell their last few units; the advantage the early
birds had of purchasing at pre-construction prices and later re-selling
them at a rate below the developer's current prices can prove to be a
major setback to the developer.
Resale of condo
properties
Some condo hotel unit
resale offers do occasionally come into the market. Of course, this is to
be expected since some of the earliest buyers would later want to move on
to something some place else. However, the resale market is still
relatively small, and it's hard to find a good bargain. In order to ensure that buyers choose a condo hotel unit that
will be a good investment, it is best if they can work with a real estate
broker who specializes in condo hotels and can make them aware of all
products available on the market.
Apart from that, they
should look for the following elements:
o Location: Real estate is all about
location; for instance, beachfront properties in South Florida have done
exceptionally well in the recent years and their appreciation has been
significant. If you prefer a property that is not on the ocean, it usually
is a good idea to select one in an area where you can expect to have
business easily driven to your property, such as near a major convention
center or in Downtown Miami near the financial district.
o Franchise: It is always best to go
with a major company that is well-known internationally like Four Seasons,
Hilton, Rosewood, Setai, Starwood and Trump are excellent examples. Ask
yourself, whether you would be likely stay in a Holiday Inn for $89 or the
independent hotel across the street for $100? It is easy to guess that
most investors or hotel guests will pay a little more for the comfort
level they get with a well-known, well-respected franchise.
o Management Company: Compare
management companies and their rental sharing program and you are likely
to feel more comfortable investing your money in a condo hotel with an
experienced, top-notch management company as against an independent
operator. So also, it is worth noting that an established management
company does worldwide marketing and is likely to have a state-of-the-art
reservation system that will help ensure that your unit is rented as far
as possible.
