Author of www.HotelLawBlog.com
3 December 2006
Condo Hotel Lawyer Las Vegas. The Condo Hotel Symposium just ended was a good show. I have to hand it to IMN — more than 550 people gathered to hear insights from the industry’s leaders and experts on this increasingly important technology. They may also account for a big surge in traffic at www.HotelLawBlog.com as more people have come to study the wealth of free information on Condo Hotels (scroll down the right hand side and select articles by Topic). If anything, the conference confirmed all my observations made on November 28, as I was heading to Las Vegas (see, “Condo Hotel Lawyer — What in the world is going on with condo hotels now?“), but I have some potentially interesting refinements and further observations inspired by the meeting.
Here are the highlights of these further ruminations . . .
Where we’ve been and where we are going with condo hotels . . .
As I said in my opening general session comments at the IMN Symposium:
- The condo hotel phenomenon has been one of the most significant events in the history of real estate — at least in the last 50 years — and may rival the 30 year fixed rate mortgage for its impact.
- The future of condo hotels is likely to be no less significant than its past, although it will go through a TRANSFORMATION or METAMORPHOSIS.
- This transformation will see hotels tightly integrated into hotel-enhanced mixed-use projects, where the condo hotels will play a smaller part or only impart the legacy of their technology and integration to the tight integration with residential, office, and entertainment real estate uses.
- The speculative foam is off the market. The flippers are finally gone. We believe that this paves the way for sustainable growth accompanied by a flight to quality — often, though not always, meaning a flight to well-recognized brands and standards such as Ritz-Carlton, Mandarin, Regent and others. There may be pain for some as certain projects and markets find their “normalized” baseline and realistic valuations.
- The slowdown that may be experienced by some projects and some markets will reflect either their underlying poor planning — a key to validate demand at the front end for both the hotel and residential components of the project — or a failure to properly identify the real buyers of the residential units and to develop a legal and effective marketing program to reach the target buyers (at the front end of the project).
- There is an encouraging precedent provided by the model seen almost exactly 20 years ago when Marriott led the charge of major brands into the timeshare business, replacing the fly-by-night timeshare developer and transforming the industry into thriving vacation ownership and fractional industry.
The huge success enjoyed by condo hotel developers over the past 5 years will continue to be a magnet for developers, but there is no longer a rising flood tide to carry all ships, so quality, analysis and developing for target unit buyers will be more important than ever.
- Condo hotels — hotels where some or all of an operating hotel’s room inventory is condominiumized and sold to individual owners — will continue to be viable on more selective basis, but essentially as we know them today.
- There will be a return to fundamentals in assessing the viability of projects.(See “Condo Hotel Fundamentals — 5 Keys to Success!“
- Before the project is begun. There will be an intelligent and comprehensive market study and/or feasibility study of BOTH the hotel and residential components.
- First and foremost, the physical plant, legal regime structure, and residential elements must promote and support a viable hotel operation — one that is both economically viable and which can deliver consistent, predictable levels of service and quality.
- Although condo hotels will continue to be successful on an increasingly selective basis, the “technology” developed over the past 5 years, will be used to create an entirely new generation of exciting product which I like to call “Hotel-enhanced Mixed-use” where hotels are an important part of a mixed-use project, and INTEGRATION of the project components is more important than ever so that every component truly contributes to the success of the other components of the project.
- More than ever, INTEGRATION will become the keystone for future projects — the business, legal, marketing and functional integration of all the components in the project. From a legal perspective, the condo hotel phenomenon has enabled a handful of firms to understand how the regime structure must work to accommodate all this.
Pulse of the Las Vegas Conference — further insights and reflections
- Condo hotels are proven. Condo hotels work. They are a rock-solid technique when well planned and executed. They will continue to evolve and improve, but their fundamental viability is not even remotely in question.
- Future toward more hotel-enhanced mixed-use. The future is toward more hotel-enhanced mixed-use where hotels and condo hotels are a part of the project, but where there also may be traditional hotel, retail, office, entertainment, pure residential, and other components. Condo hotel will lend their technology legacy of integration and regime structure, but will more often be only a smaller part of the project.
- Success by individual project merits. While the IMN Condo Hotel Symposium reinforced and validated my pre-conference assessment on November 28, 2006 (See “Condo Hotel Lawyer — What in the world is going on with condo hotels now?“), I now see that should have added a major qualification to my assessments. The generalizations are just that — generalizations. And the prospects for a project will be very project specific.
While I believe my generalization on prospects for the condo hotel industry are vary accurate, at the end of the day, the drivers and factors for each project will vary, — whether for resort or urban, luxury or ultra-luxury vs midscale or lower, geographic market, unique and specific drivers for the market. That is perhaps the most exciting update on the condo hotel market — what’s happening in specific markets and structures. What drives the successful sell outs now?
More about “What drives successful sellouts” of condo hotels in the next posting.
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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 firstname.lastname@example.org or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.