Everywhere you look in the real estate investment market, you see condo hotels being built. It seems everyone, from individual investors to real estate developers and resorts want to get in on the game. However, you may still not be quite sure what the buzz is all about and what the term “condo hotel” or hotel co-ownership means exactly. Although it is a relatively new phenomenon, it is already quite strong in Quebec and internationally. We will go into more details about what a condo hotel is exactly, why it is so popular, the ins and outs and which locations are most common for these types of properties.

What Does the Term Condo Hotel Mean?

First, we must clarify that the term condo hotel is NOT the same thing as time sharing. A condo hotel consists of a leisure type of real estate property located inside a hotel. The investor who buys a condo hotel can either 1) rent it out by going through an established program between a management firm and guests 2) the hotel manages the rental of the units and shares the revenue with the investor after having subtracted management and related costs or 3) the investor stays in his unit without depending on any intermediary. Depending on the negotiated terms, the investor can use his unit for specified lengths of time or as much as he desires.

Why is it so Popular?

Condo hotels have gained popularity because they represent a win-win situation as much for the real estate developer as the individual investor. It is an ingenuous way for the hotel industry to finance new hotel construction. However, the developers are very selective in terms of the location of these new condo hotels. In order to succeed, these properties have to be located in high volume tourist areas or business centers.

Owning a unit in a condo hotel means you can have a vacation home in one of the best locations and you’ll get to earn money when you’re not you’re using it. By capitalizing on a hotel’s name recognition, advertising, national affiliations, centralized reservation system and management expertise, unit owners typically receive a higher level of rental income than they would from a traditional vacation home. In addition, a professional hospitality management company will take care of all of the maintenance and operational issues. Many condo hotels are owned and managed by the top hospitality firms. An on-site management company handles all maintenance issues and communication with renters. Bonus features frequently associated with condo hotel properties include spas, fitness centers, restaurants, business centers, and more. Typical services could include valet, housekeeping and a concierge. Condo hotel units can be sold at any time. Owners benefit from keeping any earnings resulting from appreciation. In this respect, condo hotels offer vacation home ownership and an investment potential.

Value of Condo Hotel is in its Appreciation

While it’s nice to receive rental revenue on your vacation home, the more important factor from an investment standpoint is its appreciation. Condo hotel units have been appreciating at a far faster rate than single family homes and condos in the same areas.

Most condo hotels are purchased directly from the developer. With limited inventory, condo hotel units have been moving at tremendous speed. In fact, almost all condo hotels sell out in pre-construction, long before even a single spade of dirt has been overturned. And as is the case in any situation where supply is greatly outpaced by demand, condo hotel owners have been seeing tremendous appreciation in their units.

Who Pays What in Condo Hotel Investment?

There are a variety of expenses involved in a condo hotel. Some of these fees are paid by the owner and others are paid by the operator of the hotel. The owner pays all the taxes and insurance on the unit. Any improvements that are needed, or wanted in the unit are the responsibility of the owner as well. If you need new tile in the bathroom, you will be responsible for paying the bill for the installation.

The operator pays the operating expenses of the hotel. This includes all administrative costs and marketing, such as advertising the units for rental. In addition, the costs incurred for housekeeping are paid by the operator. This includes the salary of the cleaning personnel, supplies and other equipment needed to keep the hotel in good condition.

When you purchase the property, you will need to sign an owner’s agreement. This should stipulate the amount of money you get and the company gets for rental on the condo. The agreement should spell out when you plan to use your condo. How much time will you be staying there? If you want to add more time, how much notice do you need to give the company? This is important because if the unit is already rented, you may not be able to stay there.

Who Operates the Rental Program and What is Their Role?

An in-house management company handles the day to day operations of the rental program. They are responsible for marketing the property, taking reservations, running the front desk, maintaining the property and providing hotel services such as housekeeping, food and beverage service, and concierge. They perform these duties in exchange for a share of the rent revenue that is generated.

When is the Best Time to Buy a Condo Hotel?

If you buy before a condo hotel project is fully built, you may be able to purchase your unit at a lower cost, as developers tend to offer the lowest prices pre-construction. When you buy a condo hotel that is already built, you can expect that it will be more costly because naturally, the developers would also want to get their investment back as soon as possible. But, it also means that you can already rent it out your unit as soon as you’ve paid for it.

The bottom line here is that you should be able to estimate how much you can fetch per night and how often you need to rent the unit out to bring in enough to cover your mortgage and other expenses.

Condo Hotels in Quebec… and Other Locations

The first condo hotel in Quebec, the Saint-Sulpice, began in 2002 in Old Montreal. The developer sold all 108 units within a couple of months at a cost ranging from $350 to $400 per square foot. Other examples of condo hotels are the Wyndham Cap Tremblant project next to the infamous Tremblant resort in the Laurentians and the 28-foot tower the Crystal on the corner of de la Montagne and René-Lévesque.

In the U.S., other projects are burgeoning as developers strive to meet the growing demand in large cities such as Las Vegas, Chicago and Miami or resorts such as Turks and Caicos Islands. Just as an example, the MGM Grand Las Vegas developers sold all 576 units in 3 days. In Canada, we can see the same effect in the condo hotel market. When compared to disappointing stock market performance, condo hotels represent an interesting investment opportunity, as much for the investor as for the resorts looking for additional financing.

How Can I Find out About Condo Hotels that are Newly Available?

The PI Global Properties Group, researches condo hotel properties searching for the best quality at the best prices. Many projects are presented to us, however just a few are selected. Properties marketed through PI Global Properties Group have been examined thoroughly and are hand picked. Featured properties can be found on our website www.prime-invest.biz. You can also subscribe to our newsletter for bi-monthly updates news of our upcoming conferences.

If you have questions regarding this article, please feel free to contact our office at 514-680-3279 for a quick response.