Condo Media - July 2010 - (Page 14)

MAINE N e w s by Jack Carr, P.E., LEED-AP R e g i o n a l Condotel The New Real Estate in Town ortland recently had some excitement with more than 15 fire trucks and their crews trying to control a major fire on the east side of the city. Ironically, the fire started in the abandoned smokehouse of the old Jordan Meats building that was in the process of demolition. This complex covers almost an entire city block of prime property, and its future may spark a new type of real estate investment in Maine, the Condotel. Like it sounds, a condotel is a cross between a condominium and a hotel. Sometimes it is called a condo-hotel. In this case, this $17 million project is a 122-room, six-story Hampton Inn with 12 condo units. This concept is not new, but it usually is seen in highend resort areas like Miami or the Caribbean — not a short walk from Portland’s working fish piers. C A I P area while providing a second home without requiring personal maintenance and visits. In effect, condotels are a type of timeshare system where your unit is in a rental pool generating income when you are not there. There are many differences between a condotel and a condo. A condotel is a turnkey type of property as it comes fully furnished and equipped. This often includes professionally decorated finishes and up-to-date kitchens. Like a condo, a condotel unit shares in the responsibilities of the common elements including the lobby, hallways and elevators, but in addition has access to hotelquality amenities such as concierge services, room and maid services, massage and spa facilities, restaurant and lounge, pool and workout rooms. Income and Expenses When developers market condotel units they are careful not to guarantee average daily rental rates, occupancy percentage or projected cash flow, because that would put them in jeopardy with the FTC. The onsite hotel management company serves the role of a condo property manager and, depending on the rental contract, a condotel unit owner can rent the unit himself or have the hotel manage all of the rentals. This latter method is the one most typically employed to take advantage of the rental services’ broad marketing reach, professional record keeping and check-in service. An important part of a unit owner’s due diligence is understanding the uncertainties of room rental and method of renting one unit vs. another. This is critical in creating an accurate investment cash flow estimate. Rental Pros and Cons So a cautious Mainer’s first question is, why? From the developer’s point of view, the answer is simple — risk sharing. With the real estate market only tentatively climbing out of recent troubles, banks are seeking more security and developers are looking for alternative funding. Without changing the size of the hotel, a developer can reduce the scope of his project by selling individual rooms as condo units and shift the development cost burden to real estate investors who are unit owners. Though Portland may not be on the same destination plane as Palm Beach, it is becoming a very popular city living spot. The condotel concept allows an investor the opportunity to make a relatively low-cost investment in a potentially good real estate growth revenue sharing rates can vary from one condotel to another. As in any investment, knowing the variable and fixed costs is just as important. Like a typical condo, a condotel will have monthly maintenance fees usually based on a per square foot formula. Though utilities are often part of this maintenance fee, property taxes are not. Additional fees could include daily housekeeping, redecorating, front office, capital improvements and various liabilities insurance to cover claims, damage and other losses. Financing also may present some differences from a primary residence loan. Often a second home loan requires higher down payments and increase financing points of 1 to 2 percent. In addition, a condotel buyer’s due diligence efforts should include a review of the hospitality company’s reputation for marketing, brand identification and standard of guest care as these factors will have a significant role in the success of the investment. Secondly, the buyer has to be certain the location is right for their personal needs. Some owner’s agreements limit the amount of time an owner can stay in their own unit, the available seasons, the required notification time and other considerations that may reduce the availability of the unit to the owner. As with all hybrids, condotels require compromises, however, with a good understanding of the issues it could be a sound investment choice without being burned. CM Jack Carr, P.E., LEED-AP, is general manager of Criterium-Mooney Engineers in Portland, Maine. He is a member of the Condo Media board and a frequent author and speaker. 14 CONDO MEDIA • JULY 2010

Table of Contents for the Digital Edition of Condo Media - July 2010

Condo Media - July 2010
From the CED’s Desk
President’s Message
CAI News
CAI Regional News
Asked & Answered
Homeowner’s Corner
Vendor Spotlight
Volunteer Spotlight
Board Member Insight
2010 CAI-NE Financial-Reserves Directory
Advertisers Index
Classified Service Directory

Condo Media - July 2010