Condominium hotel
Condominium hotel (also called condo hotel, condotel, or hotel condo) is a property type where a building operates legally as a condominium but functions as a hotel, with individually owned units that can be rented to the public through a managed rental program[1]. The concept combines vacation home ownership with investment potential, offering owners both personal use and rental income opportunities.
Structure and operation
Condo hotels typically occupy high-rise buildings developed and operated as luxury hotels in major cities and resort destinations. Each unit represents fee simple deeded real estate that can be bought and sold like other property types.
The operational model works as follows: individual owners purchase units within the hotel. A management company, usually an established hotel brand, operates the rental program. When owners are not using their units, the units enter the hotel's room inventory. The hotel handles marketing, reservations, front desk operations, housekeeping, and guest services.
Owners receive a share of rental revenue generated by their units. Revenue splits between owner and management company vary by project but typically hover around 50 percent. Monthly fees generally cover FF&E (Furniture, Fixtures and Equipment) reserves and resort fees.
Investment characteristics
Potential benefits
Owners gain several advantages:
- Access to hotel amenities including room service, front desk, housekeeping, and concierge services
- Professional property management without direct landlord responsibilities
- Revenue generation during periods of non-use
- Appreciation potential on the real estate asset
- Deeded ownership transferable through sale or inheritance
Risks and challenges
Financing presents a significant obstacle. Most traditional lenders classify condo hotels as non-warrantable properties that fail to meet standard underwriting criteria for conventional mortgages[2]. Investors often must seek alternative lending options with higher interest rates and less favorable terms.
Appreciation potential may be limited compared to traditional real estate. Condo hotels are frequently valued based on income-generating potential rather than comparable sales. The niche market can make resale challenging.
Income projections carry uncertainty. Developers typically avoid providing room rate or occupancy estimates due to U.S. Securities and Exchange Commission regulations that would apply if they made such projections. This makes analyzing the economics of a unit extremely difficult for prospective buyers.
Regulatory environment
Condo hotel developers must comply with both traditional hotel regulations and state and local condominium laws. Condominium statutes function primarily as disclosure laws designed to protect buyers by requiring developers to provide specific information.
The SEC distinguishes between real estate sales and securities offerings. When developers make income projections or operate rental pools with certain characteristics, the offering may constitute a security requiring registration. Most developers structure their programs to avoid this classification.
Popular locations
Major U.S. markets for condo hotels include:
- Miami and Fort Lauderdale, Florida
- Las Vegas Valley, Nevada
- New York City
- Orlando, Florida
- Myrtle Beach, South Carolina
- Aspen, Colorado
- Chicago, Illinois
Resort destinations with strong tourism appeal dominate the sector, as rental demand drives the investment model.
Condo hotels differ from timeshares in ownership structure. Timeshare buyers typically purchase the right to use a property for a specific period each year. Condo hotel buyers own their unit outright as deeded real estate. This distinction affects financing options, resale value, and legal rights.
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References
- Rushmore, S. (2004). Hotel Investments Handbook. HVS International.
- Raleigh, L.E. and Roginsky, R.J. (2006). Hotel Investments: Issues & Perspectives. Educational Institute of the American Hotel & Lodging Association.
- Urban Land Institute (2008). Mixed-Use Development Handbook. Urban Land Institute.
Footnotes
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- Urban Land Institute (2008). Mixed-Use Development Handbook. Urban Land Institute.
- Rushmore, S. (2004). Hotel Investments Handbook. HVS International.