Author of www.HotelLawBlog.com
4 December 2006
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Condo Hotel Lawyer in Las Vegas. As I reported yesterday in my www.HotelLawBlog.com, the big crowd at IMN’s condo hotel symposium in Las Vegas last week — more than 550 people — was impressive with a lot of the top players. The symposium delegates included a lot of experienced developers, looking to start their first condo hotel project, or looking to take hotel-enhanced mixed-use to the next level. If you missed my “Las Vegas Report from IMN Condo Hotel Conference,” please start there. Today, we move on to explore what makes a condo hotel project successful.
Many roads lead to Rome . . .
In the transformation of the condo hotel business I spoke of earlier (see, “Las Vegas Report from IMN Condo Hotel Conference,” we see changing the condo hotel landscape, there will be a sea change affecting almost all projects. A return to fundamentals, a new emphasis on integration of project components at a higher level, and projects made outstandingly successful by individual project merits.
And that is the key point of today’s message — generalizations may strongly suggest one approach to success in specific areas, but particular markets and circumstances will validate others. So let’s get into the specifics to see what I mean.
What drives the successful sell outs now?
As I said before, there is a “sea change” going on, a total transformation of the condo hotel industry. This transformation will be good for quality players and for the long run, but will be painful for some in the short run. There will be a renewed emphasis on quality and a punctilious commitment to delivery on expectations — managing those expectations realistically, but then delivering on them. (See “Condo Hotel Fundamentals — 5 Keys to Success!“)
The condo hotel phenomenon is driven by the buyers of the units. If they don’t buy, you don’t have a condo hotel! It’s that simple. So what do you do to have a successful sell out in today’s market? Like the Trump 8-hour blow out in Waikiki or the Paul Allen one-day sell out?
A critical part of it is the inherent quality of the project and its administration … quality planning, quality product, the right team, and great execution. Now, more than ever, you need your entire team assembled up front and providing their input in a coordinated fashion — at the front end of the project. You need your marketing team — the men and women who will actually sell the product to your buyers — to be talking with your lawyers and architects and designers to put together the right product to sell. Do you want to be like GM in the 1960s building what it wants to and trying to shove it down the consumers’ throats, or like Toyota, diligently studying what the consumer wants and trying to build a better version of their dream? It lead Toyota on to unimagined success. I suggest that is the model to follow.
Marketing, Marketing, Marketing. In the U.S., with the SEC restrictions, condo hotels are best marketed by real specialists, not the local residential brokers — unless they are properly supervised, trained and directed. Everyone wants to think they can make this work but it usually does not. Real estate brokers are used to talking about values, income, appreciation, investment value and all the things that are forbidden for condo hotel sales unless you want to be a security. [You do not! Trust me on this.] So think, the specialists in condo hotel sales like Sunburst, Weitzman, Sunshine, Playground, and a handful of others.
Use restrictions. For SEC reasons, the developer cannot impose significant restrictions on owners’ use of their condos, unless they are merely passing through reasonable and pre-existing municipal ordinance restrictions (NOT something negotiated in a development agreement!). Some think that use restrictions are a God-send, helping them creates a viable hotel operation by making it more likely that unit owners will put their units into a rental pool. I would rather rely on owners’ instincts and fear that use restrictions are more likely to limit buyer incentives. Apparently this depends very much on the individual market and buyer expectations. Many buyers in many markets to not appear concerned about use restrictions (whether imposed by municipalities in the U.S. or by developers outside the U.S.). Do your market research!
What should the unit look like? Beauty is in the eye of the beholder, and apparently that eye varies widely from market to market, and price range to price range. The one thing that is clear in the TRANSFORMATION, is that you better identify the buyer for YOUR unit and build what he or she wants. This is not the time to play “Field of Dreams” where if you build it they will come. Find out what they want to come to, and build THAT.
Luxury or budget? Again, I don’t know, but personally I am inclined to go with the higher end of the spectrum. There were many speakers at the Luxury and Ultra-Luxury end of the spectrum claiming that demand for their product was undiminished. I think this is an extension of the theory that “the rich can always afford what they want and will buy it” theory. I personally believe this has a lot of merit. I also think it is one of the factors that pushes condo hotels more into the residential mixed-use category of hotel-enhanced mixed-use. It may be that Ritz-Carlton and Four Seasons have it right. But all the other high end brands are very happy to go there too.
Brands. In many (most?) domestic situations, brand power is extremely valuable. It may be less so internationally. Generally speaking, in the U.S., and particularly at the higher end of the spectrum, a well-recognized brand will add substantial value to a project, make it more financeable, and provide a comfort level to unit buyers that is hard to replace. Irene Houck of InterContinental did a fine job at the symposium of describing how InterContinental has gone after this condo hotel segment and is a force to be reckoned with. So are Fairmont, Regent, Mandarin and a number of others. Many great brands (such as Ritz-Carlton and Four Seasons) are more interested in hotel-enhanced mixed-use with residential, but not condo hotel. Trump has become a “brand” and many people are chasing it to see if they can tap into an 8 hour sellout like the Trump Waikiki.
But having said how important brands have become in this arena, and while I would “generally” recommend a brand, there are many stunning examples of immensely successful projects where the branding has not been necessary and perhaps would not have helped. I would say these cases generally tend to be outside the U.S. or in unique markets where some aspect of the market, property, or history create a draw that transcends a brand, or almost creates its own brand.
Resort or Urban location? Generally, I like the resort properties over urban, but I am convinced that the right project in New York, Chicago, London or even Los Angeles can work. I was impressed by stories from several speakers at the IMN symposium how seemingly rural communities had unique compelling demand drivers for buyers of condo hotel units and hit quick sell outs because they did their homework — they understood their market, their buyers, and what they needed and built to meet that need. The South American cash flow into US real estate is awesome. Oh to be in South Florida . . . But I still love Palm Springs, Chicago, New York, Costa Rica, Mexico, Tuscany and . . . (it goes on).
Does celebrity status equal or substitute for a brand? I don’t know the answer to this, but one can look at a lot of specific bets by celebrities and use or their names to make condo hotel projects successful. Where do we start for examples? Well how about some of the situations we have covered here at www.HotelLawBlog.com recently? For example: Magic Johnson, Barry Sternlicht, Paul Allen, Andre Agassi and Stefanie Graf, and Shaquille O’Neal.
There may be many other factors that make a particular project successful. I like quality, sponsorship, planning, and buyer focus. I also like hotel-enhanced mixed-use for most projects, where the condo hotel element is one part of the regime, but only one part, with at least a significant dedicated traditional hotel room element. But I think integration is one of the most important elements. We will talk about that in future postings.
Butler’s Maxim
Rule number one is that the project must work first and foremost as a hotel.
Rule number two is that you must manage and deliver on expectations of all stakeholders — condo buyers, lenders, operators, municipalities, and others.
I have a few other thoughts for condo hotel projects outside the U.S., and will save those for the next posting. I think the condo hotel market outside the U.S. is just starting and is ready to explode — particularly without the U.S. restrictions imposed by the SEC. But what can we contribute to that movement? Lots!
Other condo hotel resources
You can access the full library of Condo Hotel materials on Hotel Law Blog by going to the home page, selecting the tab at the top that says “HOTEL LAW TOPICS”, and then clicking on “Condo Hotels” in the drop down menu . . . or by clicking here.
Below is a partial listing of articles by JMBM’s Condo Hotel Lawyers:
- Condo hotels: Don’t forget the secret sauce!
- Condo Hotel Lawyer: What is a Condo Hotel?
- The “new breed” of condo hotels — Key to financing new hotel development? Selling condo hotels as “securities” under new SEC Rule 506(c) . . .
- Using condo hotels for financing new hotel development: Traditional condo hotel structures as “non-securities”
- Condo Hotel fundamentals — 5 Keys to Success!
- Condo Hotels’ enduring legacy: hotel-enhanced mixed-use
- Hospitality Lawyer: The 5 biggest misconceptions about Condo Hotels
- Condo Hotel Lawyer: Why does the SEC care about condo hotels?
- Condo Hotel Lawyer: Standards must be “built in”
- Condo Hotel Lawyer: Not so fast! Locking down the condo hotel structure
- Condo Hotel Lawyer — What is fanning the condo hotel wild fire in Latin America, the Caribbean, Europe, China, India and the Middle East?
- Condo Hotel Lawyer — Las Vegas Report: What drives successful sellouts today?
- Condo Hotel Lawyer — What in the world is going on with condo hotels now?
- Hospitality Lawyer — Trump’s luxury residential mixed-use project in Hawaii sells out in 8 hours. New sales record claimed.
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $87 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who’s your hotel lawyer?
Our Perspective. We represent hotel owners, developers and investors. We have helped our clients find business and legal solutions for more than $125 billion of hotel transactions, involving more than 4,700 properties all over the world, including more than 100 condo hotels and hotel condos. For more information, please contact Jim Butler at jbutler@jmbm.com or +1 (310) 201-3526.
Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why. 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.