by Morton D. Rosenbaum | March 01, 2006


Condo-hotels hotel and resort properties made up of individually owned condominiums have become a full-throttle trend. To wit: Hendersonville, Tenn.-based Smith Travel Research tallies a total of 95,000 “condotel” guest rooms now in the pipeline. While this movement certainly has its hotbeds (glitzy Las Vegas high-rises and the ritzy resorts of Southeastern Florida make up half of the total), condotel frenzy is catching fire in major cities and resort destinations all around the country.
    While the rash of condominium projects has spurred a record-breaking pace of development, it also poses a potential problem for planners namely, can quality be controlled? If each hotel is owned by hundreds of individual investors instead of the usual one or two, all aspects of the hotel experience might suffer, say some hospitality industry experts. Room quality could be spotty, for example, and securing a block of rooms well in advance might prove vexing. Even service could go down the tubes.
    “When you combine hotels and condos, that intersection creates this third dimension with an altogether different set of legal and operational problems,” says Jim Butler, a hospitality attorney whose Los Angeles-based firm, Jeffer, Mangels, Butler & Marmaro LLP, already has dealt with more than 350 different condo-hotel proposals.
    Or, in the less delicate words of Steven Rushmore, president and founder of Mineola, N.Y.-based consultancy HVS International, the condo-hotel boom could be “a disaster waiting to happen.”

How they work
Condotels are springing up throughout the United States with practically as many development models as there are proposals, but most fall into two basic types:
    A) A hotel with some residential condos that are absorbed back into the rental pool when the owner is away. At these properties, condo owners can participate in a voluntary rental program that typically entitles them to half the revenues brought in by their units.
    B) A property that sells every one of its guest rooms as condo units, but the owners do not stay in the rooms; instead, it’s as though each owner invested in a small portion of a functioning hotel.
    At first glance, these projects do seem, in the well-worn industry parlance, like a win-win. The immediate financing a developer can pick up from the sale of just a handful condo units can equal or surpass revenues from several years’ worth of transient business. Individual investors are quick to snatch up a piece of the action as well, since a condo price tag includes not only a residence with full-service amenities but all the financial allure of a smart hotel investment. And meeting planners, especially those fretting over rooms lost to condo conversions, benefit from developers’ new freedom to build and build lavishly. “Condo-hotel developers see more money up front,” Butler says, “which usually translates into some very big, very upscale rooms with some equally high-end technology.” 
    The condo-hotel model also presents new options for room flexibility. At Miami Beach’s mammoth Fontainebleau Hotel & Resort, a planner whose group fits too snugly in the property’s 876 rooms can tap more than 400 rentable condo units a number that will bulk up by more than 50 percent this year alone. 
    And as Terri Meyer, president of Las Vegas-based Convention Management Associates, points out, the opportunity to put up VIPs in the large, luxurious spaces of private residences is always welcome, especially in a hotel landscape where suites are sometimes hard to secure. 
    John Arnett, president of the Santa Monica, Calif.-based Kor Hotel Group, which will open the resort-meets-residence Viceroy Anguilla and Viceroy Riviera Maya this year, agrees. “Generally, with our properties and I think with many others, the package put together for an owner’s residence is just richer and more sophisticated than a straightforward hotel room,” he says.
    But if the advantages of a condo are noteworthy, so too are the complexities.