# Condo-Hotel Article in BankRate.com



## Gadabout (May 12, 2006)

For any who are interested:

http://www.bankrate.com/dls/news/real-estate/20060504a1.asp


If this has been posted elsewhere, I apologize.

I did not mean to post it here--I meant to put it in the "Buying and Selling" forum. Sorry !


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## pwrshift (May 12, 2006)

JW Marriott has some involvement in a Condo Hotel 2 hours north of Toronto but I think it's having difficulty selling due to a relatively short prime season.

http://www.redleavesmuskoka.com/

Intrawest (with Westin) had one in a summer&ski area north of Toronto (Collingwood) that sold out in 8 hours a few years back, and has just opened this year.  Looks very nice.

http://www.starwoodhotels.com/westin/search/hotel_detail.html?propertyID=1498&back=-1

Ritz Carlton is selling one right now in Toronto with starting prices at $1.2 million!

http://www.theresidencestoronto.com/flash/intro.htm

Trump is selling one in Fort Lauderdale at $1200 a sq ft -- and pays owners 70% of the room rate collected.  Almost all sold out.

http://www.trumpfortlauderdale.com/

Interesting concept, but I guess the jury is still out on it all.

Brian


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## PerryM (May 12, 2006)

*Ma and Pa & smoke and mirrors*

IntraWest is a leader in condo-hotels; Link: http://www.playground.com/en/usa/portfolio/index_usa_portfolio.asp (They call their condo-hotel line “Playground” – must be a Canadian thing)

They allow owners of their condo-hotels to exchange weeks from resort to resort and are currently negotiating with II to deposit weeks just like timeshares into the current II system.

My contention is that condo-hotels pose competition to timeshares.  The developer of a resort just needs 1 owner per condo versus 50 and condo-hotels appreciate in value just like condos.  In states like Hawaii there is NO difference between condo-hotel ownership and condo ownership.  Florida has a different structure – in Florida you own the paint on the walls and everything inside the condo.  Everything else is owned by someone else; i.e. the sheetrock on the walls outward to include the building, surrounding grounds, and structures.

I believe the baby boomers want to own several condo-hotels around the country and spend time at each throughout the year.  For this reason it would not surprise me to see Marriott or someone like that build a resort and decide that selling it as a condo-hotel makes more sense than a timeshare.

When I do the numbers, Marriott could make vastly more money in 30 years selling a project as a condo-hotel than a timeshare. (By 2 to 1)  In a timeshare, Marriott is but the hired management company; in a condo-hotel they get 50% of the rent for as long as the project exists plus selling the condos up front for instant cash. In Florida, the decision NOT to introduce a resort as a condo-hotel but a timeshare is something the stockholders should be scratching their heads over.

The Achilles Heel for timeshares is the lack of real estate appreciation – so far, timeshares have done the “Razzle Dazzle” and used smoke and mirrors to hide this glaring fault – how long can they continue to do this?

THE major advantage of condo-hotels IS real estate appreciation.  How long will the major hotel chains watch Trump make zillions while they peddle a 1/50 condo to Ma and Pa?  Ma and Pa really want appreciation on their investment and they have to be tricked into that illusion with a timeshare.

The next 10 years will be very exciting for both condo-hotels and timeshares.


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## Teresa (May 13, 2006)

Condotels have been around for years - so this isn't a new concept.   A condotel is - to put it is it's simplest terms - a condo building wth a front desk.   That the 'big playes' are getting into the act - well, that might be the 'new' part.

'Condominium' is a form of ownership rather than a building style.   With a condominium you own a specific space in a building and then, generally, share expenses for 'common' areas.

Banks look differently at condotels when you want to finance them - they consider them a bigger risk than a 'regular' condo - so usually charge higher interest and expect a bigger down payment.

I have owned a condotel (2 bedroom, 2 bath, 850 sq. ft.) in Daytona for many years.   I rent it out myself AND the front desk has a shot at it too.   When the front desk rents it they charge me 30% of the rent BUT I don't charge what the front desk charges so I net about the same per week rented.

The biggest different I see with this 'new' version and the version I'm in is that I own an equal share of the common areas with the other owners.   The rental management company doesn't own any part of our building (and, consequently, the owners of the units pay for the common area expenses with their monthly maintenance fees).   I'm guessing that with the 'new' version, Trump or Marriott or whoever/whatever owns the lobby and perhaps other areas as well.   I'm guessing too, that there is a monthly maintenance fee that probably covers more 'stuff' than the one I pay covers.   Maybe furniture and/or appliances inside the unit (I have to cover those myself).

One additional note - condo ownership adds another 'layer' of government to your life - a Homeowners Association.   A whole other set of rules to follow (in addition to federal, state, county, city).


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## Gadabout (May 13, 2006)

You could probably do the same thing with a regular condo unit if it is in the right location through word-of-mouth, so why is this better, other than the name on the condo-hotel?


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## PerryM (May 14, 2006)

*Use Zillow and Orbits to uncover the truth*

In the Marriott Forum I have a recent thread about Zillow – if you care to get into condo-hotels this is a MUST.

If you’ve never played with Zillow.com you’re in for a treat.  Link: www.zillow.com

Zillow allows you to get the real estate values of just about any home you want – try your home and find out how much it’s worth.

Here is a link to the Marriott Maui Ocean Club: 
http://www.zillow.com/search/Search.htm?addrstrthood=100+nohea+Kai+dr&citystatezip=96761&mode=search

Unfortunately, the satellite maps of Ka’anapali are not that high of resolution so you must use a map.  If you drag the map down (go North) you will find a condo complex nearby (Blue diamond mark for Ka’anapali GC-Tournament North – click the blue diamond):

http://www.zillow.com/search/Search... Dr&citystatezip=Lahaina, HI 96761&mode=units

There are a bunch of condos listed with full price history going back many years.  Click the first one and then click “See more Zestimate rankings” and you will get:

http://www.zillow.com/Charts.htm?chartDuration=1year&zpid=758299

Here you will see average condos appreciating in the last 12 months at 24.5%.

Condo hotels on Maui appreciate exactly the same rate since there is NO difference to either the banks or the real estate market.  If anything condo hotels on Maui are more desirable than a normal condo.  Many if not most condos on Maui are owned by folks in California who visit their condos once in a while.

Here is the web site for the IntraWest condo hotel resort being built now: http://www.honuakai.com/ (1 mile north of the Marriott)

Link on Zillow: http://www.zillow.com/search/Search...pali+shores+pl&citystatezip=96761&mode=search
This is for the Mahana - a 35 year old condo near by.

The second condo hotel building will be taking deposits in September 2006 – this is something to look at if you are considering condo hotels.

IntraWest does a lot of advertising in Europe for their Whistler clients and those folks will be flocking to Maui during their August holiday to go along with their December holiday in Whistler.

The resources exist to give a person all the tools needed to make an intelligent real estate decision.  Orbits is a great place to get competitive rental rates and work up your spread sheet figures as to rental income.

Of course the condo-hotel owner expects appreciation during the 3 year build cycle and our timeshare brother just hopes resale prices don't fall too low during the same time.


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## caribbeansun (May 14, 2006)

Why do you say that?  My experience is that they are treating them pretty much the same - has your experience been different?  Have you heard the logic or reasoning behind this?



			
				Teresa said:
			
		

> Banks look differently at condotels when you want to finance them - they consider them a bigger risk than a 'regular' condo - so usually charge higher interest and expect a bigger down payment.



Brian - do you have the price list of the Marriott property in Muskoka?  Rather aggresive revenue sharing if you ask me - although perhaps it's backended with a lower MF.


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## ondeadlin (May 14, 2006)

> "A condo-hotel is a financing mechanism to shift the risk to individual owners," he says.



This is the biggest red flag to me.

I think a lot of folks buy these and count on the rental income to meet their overall yearly nut. If that rental income were suddenly cut in half for a year or two because of either a serious economic downtown, or a major terrorist incident, I think a lot of the newest, high-end condotels would have significant owner attrition.

And who would be there to buy at rockbottom prices? Well, the hotel companies, of course, who can afford to ride out all but the roughest times.

It might be a good deal for some owners ... but it's a great deal for the hotel companies.


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## BocaBum99 (May 14, 2006)

ondeadlin said:
			
		

> This is the biggest red flag to me.
> 
> I think a lot of folks buy these and count on the rental income to meet their overall yearly nut. If that rental income were suddenly cut in half for a year or two because of either a serious economic downtown, or a major terrorist incident, I think a lot of the newest, high-end condotels would have significant owner attrition.
> 
> ...



This is exactly what I am waiting for.  To make the most money, you need to buy low and sell high.  Since the real estate bubble is deflating, there could be some excellent buys in the coming years.

The time to buy is when everyone else wants to sell.


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## caribbeansun (May 14, 2006)

Re ondeadlin and Boca's comments:

The financing they are referring to is that of hotel/resort financing vs. condotel - so yes, I can see where the hotel/resort source of financing would much prefer this manner of funding.  

Re. the risk to the buyer, I fail to see how this can be considered to be more risky than a condo.  In fact I'd suggest it should be lower risk providing the resort operator is stable - the thing that the condotel has going for it that the stand alone condo does not is the use and affiliation with the resort's amenities - most, if not all, aren't present with a condo.

Not all condotels are created equal - the ones with restrictions on personal use and a paltry 50% of the rental income while still having to pay all the standard strata, insurance, property taxes etc. seem like pretty bad deals to me.  Why I would provide the capital to build something and then allow someone else to tell me when I can use it is beyond me.

Some of these are pretty novel in that they allow you a couple of high season weeks and then a good number of off season weeks to use your condo - presumably this is their justification for the low revenue participation but geez, how bad an idea is that?  

I looked over the Muskoka project noted above and see that you are given 3 choices of ownership/use:

1) 9 weeks of use (3 prime weeks, 6 low season), 50% revenue
2) 8 weeks of use (2 prime weeks, 6 low season), 52% revenue
3) 7 weeks of use (1 prime week, 6 low season), 54% revenue

I don't see the option to have 2-3 prime weeks and they can keep all the rest for a higher percentage of rental revenue - I wonder why?  Perhaps this is why that project isn't selling as well as others - I don't know, just a guess.

Another interesting part of this particular project is that while using your off season weeks you will be putting money into their on-site concessions such as the spa, restaurant, etc. allowing them hopefully to retain their better employees.


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## PerryM (May 14, 2006)

*Real estate bubbles and Bigfoot*

Since we bought our first condo hotel last March (2005) Florida has increased 25%+ in real estate value.  The highly leveraged loan doubles this for us.

Real estate markets like the stock markets are based on supply and demand.  Are today’s prices too high?  You need to look at supply and demand to get an indication.

5 years from now my guess (and that’s all it is a WAG) folks will kick themselves for not investing in real estate and the US stock market – it will be THE greatest time for wealth accumulation in the history of mankind (Again my WAG)  More wealth will be created by exploding markets than generations toiling away at jobs in businesses.

Florida and Maui (and may other parts of the country) will see real estate double in price and the stock market (DOW) will blast thru 20,000 without looking back.

The demand for equity ownership (NOT timeshares) is going to be fueled by Baby Boomers who are retiring at 59.5 years and want to enjoy their remaining years in 5-star Trump type condos around the county.  They don’t want to wait they are buying in record numbers now and the wave has just begun.

The stock market is poised for eye watering explosions that will easily double the DOW in 5 years.

But, the main stream media (I like the term “Drive by Media”) search for Bigfoot and real estate bubbles has consumed their time and hogged the headlines and it makes for great sorties.

Am I right?  Well tune back in 5 years from now to find out.


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## BocaBum99 (May 14, 2006)

Condo hotels are more risky because the market for them is smaller than for residential real estate and the costs are higher.

This may have changed since I last put an offer on a condo hotel unit.  But, at the time (Oct 2002), financing required 25% down and a higher interest rate.

Many condo hotels cannot be used full time by the owner.  So, this makes it a special purpose property.  And, the appraisal must be done with like kind properties, aka hotels.


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## PerryM (May 14, 2006)

BB,

Our Florida condo-hotel was financed with 20% down and a VERY low interest rate (1/2 point higher than a condo loan) – the condo hotels were just becoming respectable back then.  I would hope that the sloths that run the mortgage broker business read and understand that in Florida a condo hotel costs 75% as much as a normal condo (In Florida) – the risk has already been reflected in the market price – for them to “double dip” is unnecessary.  (But, I guess profitable)  We could have gotten 10% down, which is what the 5 mortgage brokers were pushing – but you have to do more paperwork at 10% than at 20% so we picked 20% down.  This was an interest ONLY loan for 10 years with the next 20 years becoming a conventional loan.  All that for 1/2 point extra!

In Hawaii, and that’s where I recommend folks who ask me invest, there is NO difference between a condo-hotel and condo – the loan rates are identical.

We had a choice to live in our condo hotel full time or put it into a rental pool (Which we did) and be limited to 60 days of personal usage per year.  This seems to be about the norm.

I must say that the most frustrating part of buying a condo-hotel is working with the lazy mortgage broker folks – they send you a pile of papers 2” thick and want you to do all the work – their entire industry seems to be stuck back in the old days where competition is just a gentleman’s agreement as to who should get the next loan and at any rate and terms they want.  I had a LOT of fun turning the 5 brokers against each other and watching the offers get better and better each day.

In my previous estimates (WAG) of the stock market and real estate market I may be too conservative in my numbers if I were to comment on those estimates again.

If a person looks at buying 3 holiday weeks from a timeshare developer nearby they can use that money instead as down payment for a nearby condo hotel and use rental income to offset some of the mortgage payments and own the ENTIRE condo – not just 3 weeks AND the real estate appreciation that goes with it.  At least that’s what my analysis of Marriotts have shown me.  To me this is a red-flag for timeshare ownership - too much fat in the price. (Developer prices)

Condo-hotel ownership is NOT for everyone and carries risk - just like stock ownership does.


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## ondeadlin (May 14, 2006)

caribbeansun said:
			
		

> I fail to see how this can be considered to be more risky than a condo



If you're in a situation where you can float a $2,000-$4,000 (or whatever) monthly payment on either a condotel or a traditional condo, then there is no more risk.

But many of the folks buying condotels are counting on the rental revenue, and many of the sales people are encouraging them to. My wife and I went to a presentation during which I pointed out that I thought the MF and weren't included in their monthly payment calculations they were throwing around.

"Well, even with the MF added in," she said, "your rental income will cover your whole payment during the summer. It's like owning for free."

And she was right. The rental income probably would cover the whole payment in the summer ... as long as tourism remained at its present level. And, of course, rental income wouldn't cover the payment at other times.

The key to buying one of these properties is now HAVING to depend on the rental income, but a lot of people do ... hence the greater risk if you're one of those people.


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## PerryM (May 14, 2006)

*Wear your toolbelt*

With the tools available to us ordinary peons, there is NO need to listen to the salesrep – if existing documents exist ask for them and use Orbitz and other places to find comparable rental rates.

Also your down payment should be such that whatever rental income you predict covers the mortgage payments – even if that’s 50% down!  Then you can determine if the deal is worth it

Just suggestions that I use.


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## Jya-Ning (May 15, 2006)

This will be an investment unless owner can take it and use all year.  So it needs to be compared to other available investment tools against the risk level and rate of return.  The risk level  is depended on each personal own knowledge and effort put on this.  

As an investment tool, you can get the asking sale price of this type and the asking price of condo around the area.  You can get final sell price for the regular condo around the area.  You can get asking retal price of hotel around the area.  You can get asking retal price of condo around the area. You don't get the final rental price of hotel or compariable condo around the area easily, you don't get the sale chance, or rental chance around the area easily.  You probably can get MF and expect rate of MF around the area easily.  You don't get detail structure of each product easily.  So, it requires more effort than other compariable products.

Jya-Ning


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