Author of www.HotelLawBlog.com
8 September 2006
Five keys to success with Condo Hotels
Along with the other hotel lawyers in the Global Hospitality Group® at JMBM, at the time of this article, my team and I have been involved in structuring more than 85 condo hotel projects over the past few years. When developers come to us with a condo hotel project — whether it is a new development or a conversion — we look at five key factors to assess the viability of the project.
These factors are:
- economic fundamentals,
- the condo hotel program’s design,
- a condo hotel regime that will ensure adequate hotel room inventory,
- structure and documentation to assure appropriate and consistent quality, and
- not locking down the structure until you have a viable regime design.
And although I don’t include it in these fundamentals, you have to worry about SEC compliance for a deal marketed or sold to US buyers (See “Why does the SEC care about condo hotels?“). Today, I want to focus on the all-important economic fundamentals.
The condo hotel regime has proven itself beyond question. Although we believe that condo hotels will continue to evolve and improve (See,”Condo Hotels’ enduring legacy: Hotel-Enhanced Mixed-Use“), there are certain fundamentals that we think are critical. Today, with a “rising tide” carrying all ships, these fundamentals are ignored by many at their peril, but we highly recommend them for your consideration.
First and foremost, we want to know whether the condo hotel can operate profitably. A condo hotel may help liberate trapped capital, but it’s not a cure for a sick hotel that can’t generate an operating profit. Simply put, if it doesn’t work as a hotel, it’s not going to work as a condo hotel.
We want to be comfortable with the economic fundamentals — demand and supply, the all-in-project cost (acquisition, construction or conversion), operating costs and achievable revenues. We want to be comfortable that the condo hotel is in a good location in a good market — that it has the right brand and operator, and that the physical facilities and amenities are competitive and suitable for the target market.
On the condo side, it must tap into an appropriate consumer demand and provide the right product at the right price point. Part of the economic equation is determining if the cash flow generated will cover operating expenses and provide some return on investment.
If developers come to us with a project that has not been subjected to a comprehensive market analysis and feasibility study, we will hook them up with one of the experienced consultants we work with regularly, to make sure the numbers work before they invest in the project.
Only dumb luck can replace due diligence and good planning — and that’s not something anyone should ever count on.
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 email@example.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.