Condo-Hotels?
Condo-hotels? Must be something new, right?
Actually, condo-hotels have been around since the 1970s, mostly on the shores of Hawaii or the ski slopes of Colorado. However, in the past five years, condo-hotels have undergone a rebirth, emerging as hot spots in the resort market, mostly in Florida, Colorado and Hawaii, but also in large metropolitan areas such Miami, Chicago and Las Vegas.
So how is a condo-hotel different from a regular condominium? Generally, while each condominium unit in a condo-hotel is owned individually, these units are rented out by the hotel developer/operator like a normal hotel, and the owners share facilities and common areas with not only other unit owners, but also with hotel guests. Moreover, in addition to such facilities and services provided in normal condominiums, condo-hotel owners and guests may also share spa and gym services, front desk services and food services. One question that arises is who has control over these facilities and services – the unit owners or the developer/operator? The answer depends on the condominium’s governing documents and separate property/maintenance agreements. Owners in condo-hotels often agree to give up certain rights to make decisions, including the right to decorate and maintain their individual units, in order to comply with uniform standards, especially those participating in the hotel’s rental program.
For some, these condo-hotels are second homes or vacation getaways. For others, they are seen as investments with the lure of returns from rentals and appreciation. The sales pitch is simple – own a little piece of paradise without the hassle of finding renters or fixing a clogged toilet. However, there are potential pitfalls for the unaware purchasers of these units. Occupancy is seen as the most troubling factor; namely, how good is your investment if the occupancy rate is at or below 50%? One condo-hotel in Las Vegas opened in June 2006 to little-to-no fanfare and, unfortunately, has been unable to live up to owners’ expectations for rental revenue, with units going vacant for significant periods. Additionally, the new construction and emergence of a substantial number of condo-hotel units has created a potential glut of available units on the market. Another factor to be wary of is the additional fees that may go along with ownership of a condo-hotel unit. Aside from general monthly maintenance fees, unit owners may also be saddled with maid service/cleaning fees, rental/management fees and furniture replacement funds. Only time will tell, but for now, that little piece of paradise may come with a higher then expected price tag.
If you would like to discuss the contents of this blog and how it affects condominium associations in more detail, please contact one of the attorneys in Stark & Stark’s Community Associations Group.
