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Condo Hotel Lawyer: Why does the SEC care about condo hotels?

By Jim Butler, Hotel Lawyer | Author of
18 September 2006
The Securities and Exchange Commission (SEC) may view the condo offering as a “security,” if any one of the following exists: 1) The condo is sold to the buyer with an emphasis on economic (or tax) benefits; 2) the condo is put into a “rental pool,” where income and expenses are pooled and each condo owner gets an allocated share; 3) the unit owner has substantial restrictions on use, occupancy or selection of a rental agent of the owner’s choosing, or 4) the condo was offered with certain “ancillary services” such as a rental program. Because a successful condo hotel must have an adequate and predictable inventory of rooms to rent out to hotel guests, it is easy to see how these factors could present challenges.

Most developers choose not to register their project with the SEC for the following reasons: First, the condo security must be registered with the SEC and in every state where it is offered (or be or offered in strict accordance with restrictive exemptions from the registration requirements). Second, a securities broker dealer (not a real estate broker) must sell the condos. Finally, because of the SEC’s anti-fraud rules, it is much easier for a dissatisfied “investor” to sue the developer, and the developer can be held personally responsible for non-compliance.

Making sure a developer doesn’t run afoul of the SEC requires that a long list of procedures, documentation, and training take place. It requires putting together a rather complex series of carrots and sticks to incentivize condo owners to participate in the rental program, and to make their condo association work with the operating hotel standards. This is an area where experience and expertise can make or break a project.

Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $50 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at or 310.201.3526.

Jim Butler is one of the top hotel lawyers in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.

Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® – a team of 50 seasoned professionals with more than $50 billion of hotel transactional experience, involving more than 1,000 properties located around the globe.

Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right “fit” for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.

Jim is frequently quoted as an expert on hotel issues by national and industry publications such as The New York Times, The Wall Street Journal, Los Angeles Times, Forbes, BusinessWeek, and Hotel Business. A frequent author and speaker, Jim’s books, articles and many expert panel presentations cover topics reflecting his practice, including hotel and hotel-mixed use investment and development, negotiating, re-negotiating or terminating hotel management agreements, acquisition and sale of hospitality properties, hotel finance, complex joint venture and entity structure matters, workouts, as well as many operating and strategic issues.

Jim Butler is a Founding Partner of Jeffer, Mangels, Butler & Marmaro LLP and he is Chairman of the firm’s Global Hospitality Group®. If you would like to discuss any hospitality or condo hotel matters, Jim would like to hear from you. Contact him at or 310.201.3526. For his views on current industry issues, visit

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