Hotel & Motel Management - July 21, 2008 - (Page 39)

www.HotelMotel.com/digital_edition HotelMotel.com | H&MM July 21, 2008 News 39 Condo-hotels sink Continued from page 1 are those in which owners felt like The market is so bleak that “they really didn’t have a rental some buyers who had put down plan,” according to Rob Webb, sedeposits on condo-hotel units are nior partner, hospitality and pracsimply walking away from closing, tice, Baker Hostetler. according to Jack McCabe, pres“I wouldn’t be surprised to see ident of McCabe Research and some changes in the SEC rules Consulting, a ﬁrm that coming out of the experianalyzes the multifamily ences that we have seen,” housing industry. Webb said. The soft residential And lenders likely real-estate market—parwill not approve loans for ticularly for condos— new condo-hotel conalso has been a major struction this year. contributor to the con“Condo-hotels are do-hotel segment’s recent gone. Unless you have problems. got a great resort locaLong “The [condo-hotel KIMPTON tion and you can slide in projects that have ﬁnunder a destination reished construction] have sort, you are more likely not been that successto get apartments done ful. Rental revenue has right now,” said Marty not been anywhere near Collins, president and some of the projections c.e.o., Gatehouse Capibefore construction, and tal Corp. a lot of lenders will not “Many of them were make a loan on a condogetting ﬁnanced on just hotel unit now,” McCabe Ross presales. That simply SONNENSCHEIN NATH said. isn’t possible in today’s & ROSENTHAL “Many of them are market,” said Joe Long, shut down, were not able to sell v.p., acquisition and development, units, and are in lawsuits over se- Kimpton Hotel & Restaurant curities fraud,” said Mark Lunt, Group. practice leader, hospitality advisoHowever, this year’s condory services group, Ernst & Young. hotel fallout—thanks to the soft Some current lawsuits allege real-estate market—has not dethat salespeople at properties com- terred some developers from gomitted securities fraud or promised ing ahead with their planned rental income on the buyers’ con- condo-hotel projects. do-hotel units. One such suit inDevelopers had 39,600 concludes a group of buyers in Florida do-hotel units in the active develwho allege that WCI Communi- opment pipeline as of April 2008, Owens ACKMAN-ZIFF REAL ESTATE GROUP “Operators and developers that fully understand the mixed-use setup are not the ones being burned right now.” –JAMES O’DONNELL, V.P., LODGING DEVELOPMENT, ROCKRESORTS AND VAIL LODGING CO. Butler JEFFER MANGELS BUTLER & MARMARO markets that are far and above any potential absorption level,” McCabe said. Condo-hotels’ ﬂaws Another reason for failed condohotel projects is that many were set up to work as condos or residences, but not as proﬁtable hotel operations, according to developers and consultants. “They were never underwritten to work as hotels. That’s what we’re seeing in South Florida: They were overbuilt, ill-conceived, and then we had a credit crunch,” said Rick Ross, chairman, global hospitality practice, Sonnenschein Nath & Rosenthal, Phoenix. “Operators and developers that fully understand the mixeduse setup are not the ones being burned right now. They didn’t make false promises during the sales process, and were fairly well set up,” said James O’Donnell, v.p., lodging development, RockResorts and Vail Lodging Co., Broomﬁeld, Colo. RockResorts and Vail Lodging operate 19 hotel and condo-hotel projects and plan to continue using their successful condo-hotel model. “You have to tailor your project to the market and to your buyers. And you don’t want to overprice yourself, compared to the competition out there,” O’Donnell said. Another reason for condo-hotel failures is the location of some projects. “The condo-hotel model took off principally in projects in unique resort destinations. Developers saw that model and tried to import it to less-desirable locations or within urban markets, and the market just did not materialize,” Long said. “The condo-hotels were built in a lot of places where there wasn’t the underlying market support for a lot of hotels,” Lunt said. ing bankrupt or facing lawsuits. Instead, they are transforming the properties into hotel operations. For example, a planned Westin condo-hotel in Nashville, developed by Sage Hospitality Resources, now will be all hotel rooms, according to published reports and Jan Freitag, v.p., global development, Smith Travel Research. [Sage executives did not return phone calls.] While the condo-hotel market as a whole isn’t posting huge successes, some projects are working when managed correctly and established in the right location. Trump-branded condo-hotel projects have largely been successful, according to consultants, because they cater to individuals who want to own units, not rent them out to make a proﬁt. “Those buyers are buying for their personal use so they have a place to stay in that market,” said Mark Owens, managing director, Ackman-Ziff Real Estate Group. “A condo-hotel is not a dead structure, but it is used in too many circumstances where it shouldn’t be used,” Webb said. A successful condo-hotel property should provide a realistic “personal use” feature, according to Webb. It could include a two- or three-bedroom condo unit that owners could use themselves, not a unit they will try to rent out. In the near future, the condohotel deals that most likely will be funded are mixed-use, state of the art properties that include entertainment and retail operations, according to Jim Butler, founding partner, Jeffer Mangels Butler & Marmaro. “They are the only projects that make economic sense,” Butler said. hmm@questex.com Condo-hotel pipeline 39,600: Condo-hotels in the active development pipeline as of April 2008 55,411: Condo-hotels in the active development pipeline as of the same period in 2007 Source: Smith Travel Research “I wouldn’t be surprised to see some changes in the SEC rules coming out of the experiences that we have seen.” –ROB WEBB, SENIOR PARTNER, HOSPITALITY AND PRACTICE, BAKER HOSTETLER ties misled them into buying units at Singer Island, Fla., as investments. In U.S. Securities & Exchange Commission ﬁlings, WCI said it will “vigorously defend” the legal action. While many condo-hotel developers were cautious in how they talked about the buildings’ sales and rental programs, some “had their heads in the sand,” Lunt said. The operations facing lawsuits compared to 55,411 units in 2007, according to data from Smith Travel Research. Around 30,000 condo-hotel units are in different phases of construction in Las Vegas alone, according to McCabe Research. In Orlando—another oversaturated market—there are about 15,000 condo-hotel units under construction. “We are potentially overbuilding condo-hotel units in several Good news At the same time, some planned condo-hotel projects are not goCIRCLE NO. 114 http://HotelMotel.com http://www.HotelMotel.com/digital_edition

Table of Contents Feed for the Digital Edition of Hotel & Motel Management - July 21, 2008

Contents Larkspur Hotels Branch Out with New Brand Starwood’s C.E.O. Maps Out Journey New Brand Leaders Share Hits, Misses Perspective Letters to the Editor Legal FAQ Training Trends Sales Clinic HotelWorld Update Trends & Stats Special Report: 2008 Construction Companies Survey Guest Column Events Technology: Telephones Hotel Operations: Building Exterior Design: Televisions Transactions Awards Hot Products: Mattresses Supplier News Ad/Edit Index Marketplace Classifieds Checking Out Hotel & Motel Management - July 21, 2008

Hotel & Motel Management - July 21, 2008

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