Condo-Hotels: Questions and Answers

September 2nd, 2006 · 10 Comments · Buyer Tips, Rental Tips

What is a condo-hotel?

A condo-hotel (also known as a condotel or hotel-condo) is a building that is used as a condominium and a hotel. The building is created as a hotel but the units are sold to people who want to own a piece of real estate in a popular resort area and enjoy the amenities and convenience of a top-notch hotel with the bonus of rental revenues. The real estate investor that owns a condo-hotel unit can now rent this room out as a standard hotel room and receive a stream of income from their investment. When you buy this unit, you own a portion of the hotel property. You buy that hotel suite and you receive a deed for it. This means that your hotel suite is all yours. Apart from the actual unit, you also own an undivided portion of all the common areas of the hotel (lobby, hallways, pool area, gym, etc).

Condo-hotels are usually given to the buyer fully-equipped and fully-furnished to the buyer as a complete real estate turn-key property investment. Note that in a condo-hotel real estate investment, you also enjoy hotel services as part of ownership - services such as room-service, maid service, massage services, hotel nightclubs, and more.

So let’s say I buy a condo-hotel unit for rental income purposes. How do I manage the rentals?

Most condo-hotels have an onsite hotel rental program that manages your property. You are usually free to choose your own rental service, but remember to ask your Realtor to check the contract! Your room is then rented out to hotel tenants and you share in the rental revenue.

What is the standard split of the room revenue that a unit owner shares with the hotel?

Owners usually keep 35 to 40 percent of the rent generated by the room.

Besides the cost of actually purchasing the unit, are there any ongoing costs with owning a condo-hotel unit?

Condo-hotel units, like other condominium units, usually have a monthly maintenance fee attached to them. For example, at the Nicky O South Beach, the maintenance fee is $1.60 per square foot (of your unit). So a 400 square foot unit would have a monthly maintenance fee of $640. All utilities are usually paid by the condo association and/or hotel, including insurance. Besides the maintenance fee, your only other costs would be property tax (assessed each November) and interest on your loan (if you borrowed funds from a lender to finance your unit).

What’s a typical occupancy rate and daily rate for a hotel in the Miami Beach area?

For example, the 194-room Delano luxury hotel in Miami Beach posted an occupancy rate of 72 percent in 2005 with an average daily rate of $474.

Why would a developer create a condo-hotel instead of just creating a hotel?

Creating a hotel costs a lot of money. When development costs go up, hotel development costs can make developing new hotels difficult (especially in such a high development cost area such as the South Florida area). Since the developer is now selling the units as individual condominiums, the development cost burden now shifts in large part to the real estate investors who are now becoming condo-hotel owners.

Are there any condo-hotels in the South Florida area?

	Nicky Olivia Hilton, daughter of Richard Hilton and Kathy Richards (and heiress of part of the Hilton Hotel chain), has created the Nicky O South Beach, located on 940 Ocean Drive in Miami Beach. The focus of the Nicky O South Beach is on design and designers. Nicky Hilton has commissioned some of the world’s top designers to create hotel suites in their style. Even the hotel staff will be dressed in designer clothing. Designer Roberto Cavalli will be creating the 5,000-sq. foot penthouse in this South Beach hotel in a gold theme that mimics his retail stores. The Nicky O condo-hotel units start at $500,000.
	The Mayfair Hotel & Spa is a 179 suite condo-hotel in the bustling Coconut Grove area of South Florida. Each Art Nouveau-style rooms is unique with private, furnished terraces including Japanese spa tubs. The outdoor courtyard is the prime location of the hotel, with fragrant orchids, botanical gardens, etched wooden doors, and stained-glass windows welcoming the hotel guests. Located on 3000 Florida Avenue, the Mayfair suites range in size from 400 to 970 square feet and range in price from $200,000 to $500,000.
	The W Hotels South Beach Residences, located on 22nd Street and Collins Avenue in Miami Beach, has condo-hotel units starting at $800,000.
	The Atlantic Condo-Hotel, located on 601 N. Fort Lauderdale Beach Blvd in Fort Lauderdale, is a 15-story oceanfront condo-hotel with 124 units starting at $470,000.

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10 responses so far ↓

1 Gus // Sep 3, 2006 at 5:36 am

Hi Michael,

Great article, very informative. I like that you posted the occupancy rate at the Delano to give buyers an idea of what to expect.

Have you personally worked with any buyers that have purchased a condo hotel, and are having success keeping it rented?

The only condo hotels I’m aware of that are actively renting out units are the Bentley Beach and the Setai. Do you know of any others?

[Reply]
2 Laritza // Sep 6, 2006 at 3:42 pm

Hi Michael,

Awesome article, seems you know alot about condo-hotel renting. Please contact me at my e-mail address so that we can arrange a meeting.

Laritza

[Reply]
3 michael // Sep 8, 2006 at 8:44 am

Gus:

Thanks for the comment! A condo-hotel that is currently renting out units apart from the ones you mentioned is the Mayfair in Coconut Grove. Units start at about $280,000.

Although we are still somewhat in the slow season, high season for hotels (increased revenue due to winter months) is about to start so this time is when the revenue really comes in. Art Basel is coming in December 7-10 to Miami Beach and that is REALLY going to heat up the hotel market.

Condo-hotels are a relatively new phenenomon in the South Florida area, so we’ll see how it all shakes out and I’ll definitely update the web site with updated information on the market!

[Reply]
4 fulanomengano // Sep 20, 2006 at 7:20 am

Michael

Although the occupation rate could be 72%, some units could be rented 100% of the time an others just 40%. Who gurantees that the units are evenly rented and that each owner gets a similar proportion of the rents?

[Reply]
5 Toronto real estate agent // Nov 30, 2007 at 4:53 am

I think to own a condo-hotel unit could be a wise option for people, who havenÂ´t enough capital for buying a condo, but wants to invest on real estate market. As Michael wrote, there is no guarantee, that your condo unit will be always occupied, but in my opinion the chances are better than by someone, who owns a flat and rent it. Of course, provided the hotel is good situated and has a good perspective for the future. And of course you must not care for all problems, which are connected with having a flat in a normal condo.

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6 john wells // Jan 12, 2008 at 11:26 am

my question is.Can the president of the cond association detrmine on his own with out a membership vote to shut the associations swimming pool down for two months because he wants to.With out a vote from the membership. JOHN,when other owners are still coming down to their 2nd homes for winter enjoyment.

[Reply]
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10 Ben Nierenberg // Jun 9, 2008 at 10:28 pm

Looking for a condo hotel rental program for sale. Any suggestions?

[Reply]

Michael Emilio

Real Estate and Small Business Blog