Owning Part of a Luxury Hotel

Condo hotels are one of the fastest growth segments in the luxury vacation real estate market. Combining freedom and flexibility from the whole ownership of a second home with the amenities and headache-free maintenance and management of a resort or destination club, condo hotels are an increasingly appealing option for affluent investors and luxury vacationers.

Mini Guide to Condo Hotels

• Part 1: Condo Hotels Explained
• Part 2: Financial Analysis
• Part 3: Brands and Projects
• Part 4: Key Questions

Five Reasons to Own a Condo Hotel

There are many tangible and intangible benefits of owning a condo hotel unit. Here’s a start:

1. The enjoyment of a beautiful vacation home in a luxury hotel
2. The potential financial benefits of appreciation
3. Management headaches of a vacation home are outsourced
4. More flexibility around timing and duration of stay than a fractional
5. Easier access to amenities for guests who use your condo

Look at the Numbers

The cost of a condo hotel unit is driven by four fees which may vary from development to development and from unit to unit:

1. Franchise fees: typically 10-12% of gross rental income
2. Management fees: varies depending on developer and project
3. Monthly maintenance fees: based on the size of the unit
4. Capital expenditures: often 5% of revenue held by management to replace or upgrade unit furnishings

When to Use Caution

Condo hotels face the same ownership risks as any other deeded property. Here are some additional risks that owners bear:

• Dependence on hotel management company’s ability to effectively and efficiently manage property while maximizing revenues
• Long term agreement with hotel management company
• Frequency of new renters (hotel guests) can create additional wear and tear on unit as well as increase risk of more substantial damage
• Lack of transparency: based on SEC regulations, condo developers do not provide important data such as room rates and occupancy levels

What to Ask

Before more detailed questions about the individual project or condo unit you’re considering investing in, these are the initial questions you should ask yourself:

1. Is this purchase primarily for investment or for personal enjoyment?
2. For my investment strategy, do I prioritize rental yield or appreciation?
3. How predictable is my vacation schedule?
4. How important is it for me to design and decorate my home the way I want to?