Condotel Craze Sweeping Urban Markets
- Want to moonlight as a VIP?
- Looking for top-rate business facilities and vacation amenities at the same time?
- Enjoy top restaurants and a lively night life?
If that sounds like an appealing combination, for just over $500 per square foot you can buy a piece of the new W Hotel & Residences and make it happen. Victory Park, a $3 billion development sprawling across 75 acres of downtown Dallas, contains a decadent, 250-room W Hotel — with the hottest properties in town up for sale. With 66 condos priced from $400,000 to $7 million atop the W, the condotel trend has reached new heights.
“We’re selling an urban lifestyle to people in their 20s with trust funds and married professionals in their 40s. We have a psychographic, not a demographic,” said Clay Likover, an associate with real estate developer Hillwood Capital.
The W Hotel & Residences is part of a property development trend that has spread fast over the past two years: the condotel. Across the U.S., hotels in prime urban areas are being redeveloped to include homes that can be purchased outright like a normal condominium, or acquired on a fractional basis. In White Sulphur Springs, W.Va, the 200-year-old Greenbriar resort is building 500 homes on lots ranging from $400,000 to $2 million. The Miami housing market is also getting hotter with the partial conversion of the Fontainebleau Hilton Resort.
But most condotels are not resorts, rather they are redeveloped historic buildings in big cities with strong condo markets. Not to mention strong commercial and cultural amenities to entice baby boomers interested in a second home. Most are run by luxury brands like Ritz-Carlton, Mandarin Oriental, Starwood’s St. Regis, and Hilton’s Conrad division.
“Eighty percent of hotel condos are bought as second homes and 20 percent for appreciation and tax benefits. This is a way to own a second home without the hassles,” said Robert Falor, CEO of Falor Cos. in Chicago.
Falor owns three existing hotel condos in Chicago and manages seven South Florida real estate projects. Fractional owners buy access to a specific hotel room for a set number of days, but unlike a time share, a partially owned room is real estate — property that can be depreciated, resold or passed on to heirs. Part-time residents often try to recoup part of their taxes and home loan payments by joining a rental pool run by the hotel.
Locally, the units are often owned by suburban baby boomers who took advantage of the low Florida home loan rates of the past five years to buy a second home. But the amenities and lifestyle do not come cheap. Besides hefty condo association fees, owners pay a service charge when they occupy the room. Hotels normally take 50 percent of any rental income a privately owned condo generates, plus a 25 percent booking fee.
If you are a developer, however, a condotel is all upside. Hotel units sold before construction generate revenue, which helps a developer build equity. Also, condos serviced by a four- or five-star hotel sell at a premium above similar luxury condos nearby. Delta Associates, a real estate research and consulting firm in Alexandria, Va., says that on average, a condotel unit will sell for 38 percent more than a similar luxury condo.
Sounds like a good investment, right? That all depends. While separately owned units can be resold as easily as any condo, the fractional share market is not as robust. Also, the nation’s condo markets as a whole are in a state of flux. Cool as it may be, you’re probably better off using your Florida home loan to buy a single-family home. Just our opinion.
