Five, count them, five luxury condo-hotels are going up along a 1.5-mile stretch of sunny Fort Lauderdale Beach, Fla. Sound familiar? Substitute “condo” for “condo-hotel” and history might be repeating itself all too quickly. Condo-hotel projects appear to be the multifamily industry's latest craze, but can the market handle the volume of product scheduled to come online within the next couple of years? “A lot of these projects saw initial success from speculative buyers, and because the first ones had highly successful initial sales campaigns, everyone said this as the hot new thing. So they rushed to get into condo-hotel building just like they did with the condos,” says Jack McCabe, CEO of Deerfield Beach, Fla.-based McCabe Research and Consulting. “Now we have a number of markets that are completely over saturated with condo development, and I think we are also going to see that [happen] in the condo-hotel sector.”
Developers, of course, are hoping that their hybrids will have staying power. The W Fort Lauderdale Hotel & Residences, which is expected to open in the first quarter of this year and includes 171 condo-hotel rooms and 341 hotel rooms, is nearly sold out. Yet, the developers admit they are not sure how long such success will continue.
“Right now, everything is being affected by the current marketplace, and everybody is looking around to see what is healthy and what is not,” says John Yanopoulos, CEO of Miami-based DYL Group, which is developing the property. “[I think] the condo-hotel business is still healthy but there is going to be a shake out over the next year.”
Clearly, though, the trend has momentum. The product type boasts a stronghold in major markets across the country, and new financial models help mitigate some of the historical risk associated with condo-hotels. Still, only time will tell whether the benefits outweigh the risks.
TAKING THE LEAD There's certainly no lack of condo-hotels to keep an eye on. More than 200 such projects are in development across the United States, according to the Scottsdale, Ariz.-based National Association of Condo Hotel Owners. Sin City claims the most condo-hotel projects with 32,000 units planned or under construction, followed by Orlando with 15,000 units, according to McCabe Research and Consulting. Hot projects include the highly anticipated CityCenter, a $7 billion MGM Mirage development in Las Vegas that will feature casinos, hotels, condos, and two hybrid condo-hotels.
Why are these crossbreeds so popular? For one, hotel developers, or condo developers looking for new opportunities can spread their financial risk among condo owners. Second, many of these are Class A assets, which are often a safer real estate bet than entry-level product. Plus, these projects are likely to bear the brand of a high-end hotel operator, such as Starwood or The Ritz-Carlton, which boosts buyer appeal even further.
“It makes financing a project significantly easier if there's a Four Seasons or a Ritz-Carlton or W [hotel],” says Marty Collins, president and CEO of Gatehouse Capital, a Dallas-based national real estate and management firm. “People trust brands. They have more confidence.” Gatehouse is developing several W-branded hotels and residences, including its largest to date—the $600 million W Hollywood Hotel & Residences at the hip intersection of Hollywood and Vine in California. The mega mixed-use masterpiece, developed in partnership with HEI Hotels & Resorts and Legacy Partners, will feature a 305-room W Hotel, 143 condos, 375 luxury apartments, and more than 50,000 square feet of retail space. The developer has released a limited number of residences, which have all sold.
DIFFERENT BREEDS Though anything involving a hotel and condos tends to get lumped under the generic term “condo-hotel,” these projects work in a couple of different ways. By strict definition, a condo-hotel allows buyers to purchase a unit with the option of entering the unit in a hotel rental program when not in use. The units tend to come furnished, and owners can access and utilize all of the hotel's amenities—even room service and housekeeping.
However, a growing number of multifamily developers are taking a different route, teaming with high-end hotel operators such as Starwood, The Ritz-Carlton, and Four Seasons to offer what's typically called a “hotel and residences.” The hotel and condos are built either in adjoining towers or with the condos directly on top of the hotel rooms. Unlike condo-hotels, the condos are sold strictly as residential units without the option to enter a hotel rental program. Condo residents still have access to all of the hotel's amenities.