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condo hotels
Old 06-14-2005, 02:02 PM   #1
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condo hotels

We (DH doesn't know this yet) will be looking at an investment in a condo hotel project in Florida. The upscale hotel units ranging from 600 to 900 sq. feet are sold to individual owners who can use the unit for themselves and also put the unit in a rental pool. Investers make money on selling out the condo units and when they are all sold, in selling the amenities and management contract. Plan is to sell out the units within a year. Buildling is all built.

Units are expected to be sold for an average sq. ft. price of $825 and are popular with foreign as well as US buyers.

So . . . tell me Floridians, have you heard of these types of condos before? The per unit price seems so high but is supported by comparables.

No one need post about the coming real estate bust. Unless you really feel the need.

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Re: condo hotels
Old 06-14-2005, 03:09 PM   #2
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Re: condo hotels

These are starting to come on line in Chicago also. So far there has not been much information out there.
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Re: condo hotels
Old 06-14-2005, 06:29 PM   #3
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Re: condo hotels

YEARS ago the Sunriver Lodge (Bend, Oregon area) was financed in this way. It worked over the long haul but the early years were iffy, as I recall.

Property management is important.

At that price you really need to look at the numbers.
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Re: condo hotels
Old 06-14-2005, 08:01 PM   #4
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Re: condo hotels

Here in Chicago, the Millenium Centre, The Pinnacle (now, since they have sold less than 50%) and the new Trump Tower are all going this route. Kinda like making your condo into a hotel room. They claim long term leases but offer no assurances.

I've enquired and have been told, "your unit will get rented, I can assure you". Scares me that my potential condo would be rented to "gang bangers, druggies, Prop 90, etc".

Check the rules/owner rights carefully.

The RiverEast Plaza over in Streeterville (Chicago), sold over 200 condos and then changed the rules to allow Prop 90 residents (lower income residents) to pay less than 1/3 rental values on the unsold units.

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Re: condo hotels
Old 06-14-2005, 08:11 PM   #5
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Re: condo hotels

So has this condo been built?* If no, is there a possibility that it won't?
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Re: condo hotels
Old 06-14-2005, 08:33 PM   #6
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Re: condo hotels

It usually requires 60-70% sales to get built. In Chicago, www.riverviewtowers.com has had 40% sales for a long time and construction is still not scheduled.

These intial buyers are really in jeopardy of losing lots of money.
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Re: condo hotels
Old 06-14-2005, 10:42 PM   #7
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Re: condo hotels

Here's what the DH thinks: Ka-boom. three tiered cascading waterfall. Bonk on the rocks. Get hit by fat tail. Ouch!

I just read some of the prospectus. It actually looks pretty good. Hotel is already built--a fancy hoity-toity one. They just have to sell the fancy apartments to suc--er I mean-- customers. In and out within a year. If all goes as planned .

I'll have to change my name here. Maybe "Apocalypse . . um . . in 15-18 months." Oh the horror . . . the horror.

BTW, the place has Vichey Showers. I have no idea what they are, but they sound dirty AND French. Ouuuu la la. Could someone describe them and then tell me what happens there?

This RE venture gets put on the bottom up dumbell--if it happens. DW keeps messing with my life.
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Re: condo hotels
Old 06-14-2005, 10:44 PM   #8
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Re: condo hotels

Vichy showers? Do they constantly surrender and say, "Whatever the third riech wants! Have you visited Casablanca?"
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Re: condo hotels
Old 06-15-2005, 07:58 AM   #9
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Re: condo hotels

We would be an investor in the entire project, not buying a unit. We make our money selling out the units when the condo conversion in complete. I think the key is how long the market will stay as hot as it is for these types of units. I am amazed people will pay a half a million for a 600 sq ft hotel room.

Excellent location on the beach.

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Re: condo hotels
Old 06-15-2005, 09:00 AM   #10
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Re: condo hotels

Laurence: Are you saying "Vichey Shower Noir?" I have visions . . . .
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Re: condo hotels
Old 06-15-2005, 12:01 PM   #11
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Re: condo hotels

Hi Martha!

These condo hotels have become pretty popular in the Clearwater to St. Pete beach area of Florida. We put a deposit down on one at $777 sq ft at the buccaneer beach resort. There are 60 gulf front units and there were about 10 left when we looked at them. They had been on the market for 2 weeks! I'm a little concerned on my end (but similar ones that are complete are going for $800 to $900 per foot), but I would have no worries about selling them on the developers end.

Here are a couple of links of companies doing this in that area:

www.beachandbayrealty
www.gailbyrne.com
www.southbeachcondohotel (by gail byrne above)

I hope this helps with your decision. Where is this development going to be? Is it open to other investors or is it a private thing?

Beachbumz* 8)
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Re: condo hotels
Old 06-15-2005, 12:16 PM   #12
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Re: condo hotels

Quote:
Originally Posted by Martha
We would be an investor in the entire project, not buying a unit.* We make our money selling out the units when the condo conversion in complete.* I think the key is how long* the market will stay as hot as it is for these types of units.* I am amazed people will pay a half a million for a 600 sq ft hotel room.*

Excellent location on the beach.
"Condotels" are huge in Hawaii and a relatively recent phenomenon. *Many older hotels are facing huge refurb/marketing costs and so they convert to shift the burden to the new owners. *So you'll want to know what major renovations/repairs are due. *A walkthrough of the industrial areas should reveal quite a bit.

La Mirage in San Diego is another example of a failed condo development. *They opened in the early/mid '90s and couldn't sell out as a condo, so they went the condotel version. *I don't know whether they've gone back to strictly condo or not.

Would you be invested as a TIC or some other form of ownership?

I don't know if this helps, but a fairly savvy (retired submariner) realtor in our area has been flogging a group they call the "Investment Company". *Here's an excerpt from his newsletter:
"Investment Company: The last two newsletters have discussed the Investment Company (IC) at some length. *The IC specializes in working with apartment complexes ranging in size from duplexes to large complexes with *hundreds of units. *The IC conducts extensive research to enable their clients to be able to invest in the right area at the right time. *At any given time, they have eight investment areas they recommend. *These areas change frequently; e.g., over the past six months, three of their eight recommended areas have changed. *The IC doesn’t own properties; they work through licensed real estate brokers in each of the recommended areas and are paid a referral
fee for providing buyers. *The IC investment criteria are a 10% cash-on-cash return along with 40% appreciation over a typical holding period of 3-4 years. *Last August, I went on a city tour as an observer. *The local real estate company provided us information on 42 available properties of which only 13 were actually listed for sale. *The
properties ranged in price from $250,000 to over $10 million with the median (mid-way) price being $800,000. *All 11 of the investors on my city tour submitted offers on properties. Most of the offers were on properties either at about $300,000 to $400,000 or at about $800,000 to $1,000,000. *Financing was available using a 20% downpayment. *Several newsletter recipients have already made such tours. *If this is of interest to you, check the applicable block on the enclosed postcard and return it; please include your phone number, as the IC will mail a free videotape to you and then call you about a week later to answer your questions."

The rest of the details are in the April & July '04 newsletters. *Of course George Stott gets a referral for feeding them customers, so "Investment Company" is his pseudonym for the actual firm (whose name will be provided to you through him). *He's a stand-up guy but he's also one of those senior execs who would rather sell houses (& mentor realtors) as his life's avocation rather than stay at home managing his eight-figure portfolio. *ER is not a vocabulary word that he would even comprehend, let alone consider. *But it's interesting that he's diversifying into nation-wide real estate rather than sticking to his "Hawaii circle of competence".

Maybe the showers are supplied with exotic mineral waters?
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Re: condo hotels
Old 06-15-2005, 12:53 PM   #13
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Re: condo hotels

Beach and Nords, it's a private placement by a party we have invested with before. We don't do TICs. Everything we do with this party is formed as an LLC.

The property is a bit north of Miami.
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Re: condo hotels
Old 06-16-2005, 07:41 AM   #14
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Re: condo hotels

Vichy, France (infamous for the puppet gov) source of bottled water in France. Water is reputed to have healing effects and hence many spas in Vichy. Now also a line of spa products. Know of at least one spa in NY that uses the products and boasts Vichy showers and baths, using the products. Would think shipping large volumes of mineral water from Vichy to be quie costly? Then again didn't Cleopatra bathe in milk?
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Re: condo hotels
Old 06-16-2005, 09:36 AM   #15
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Re: condo hotels

Thanks for the info on Vichy Showers PS. But still Ouuu La La. I'm seeing Ingrid Bergman-like young ladies scampering about with bars of soap. I blame Laurence for this thought . Maybe if this 'venture' works out, I can go visit this coming winter, a field trip, so to speak . . . . nevermind!

I'm still thinking about the risk-reward ratio. Plus where does the money comes from to fund this thing, do I sell small cap stocks that I really like or take safe money from the other side of the dumbell? Plus there's the moral issue: I've never made money off of rich people. Is this right? Does it interfere with 'trickle down?' Good liberals want to know?
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Old 06-16-2005, 11:09 AM   #16
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Re: condo hotels

Quote:
Originally Posted by P.S.
Then again didn't Cleopatra bathe in milk?
Yes, but she was only about 12 or 13.

One of my neighbors has a brother that lives in FL and he was getting egged on to kick in a chunk of his retirement money into one of these.

I wasnt too favorable about it.

FL real estate is nutty. I dont really see the reason for it. I figured after the 5 hurricanes that went through last winter the prices there would drop like a rock. By the way, that hurricane thing is something to consider with regards to a large building on the beach.

I'm having a hard time seeing strong appreciation up north of $800 a square foot. And can you actually get rents comparable to the purchase price or is there a huge disparity (big red flag for me if someone wont rent it for anything near what i'm paying for it to own).

And anytime people are 'excited' and running around with their checkbooks trying to 'get in' on any real estate market, I put my hands in my pockets and walk the other way. So far I havent been disappointed.
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Old 06-16-2005, 11:30 AM   #17
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Re: condo hotels

Quote:
Originally Posted by Apocalypse . . .um . . .SOON
Thanks for the info on Vichy Showers PS. But still Ouuu La La. I'm seeing Ingrid Bergman-like young ladies scampering about with bars of soap. I blame Laurence for this thought .
You're welcome!

Getting simple, what % of your portfolio would be placed in this investment?
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Re: condo hotels
Old 06-16-2005, 12:13 PM   #18
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Re: condo hotels

TH, I wouldn't buy a unit and plan on making money from rental. We are considering investing in the resort. We get our money out when the condo units are sold. As Greg said, in and out in less than 18 months. [Edit: BTW, based on comparables, it does look like the units would cash flow if the individual condo owners put thier condo into the rental pool. But as the developer, you can't market that fact or require an owner to join a rental pool because that would be selling a security.]

Lawrence has a point about what portion of our assets it would be. A little piece, so in my mind, maybe worth the risk. We have another real estate deal where the project is being sold. Once that deal closes, even if we buy into this deal we will have a reduced position in real estate investments.

I think there are a number of reasons Florida real estate is nutty. On big reason is simply location. People come down from the entire east coast and up into Canada to be in Florida. Europeans like Florida. South Americans like Florida. Hurricanes? So it blows away a few mobile homes . . .
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Re: condo hotels
Old 06-16-2005, 12:36 PM   #19
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Re: condo hotels

I saw what a few hurricanes did to some of the hotels in cancun about 15 years ago. Absolutely devasted them.

Andrew wasnt too kind even to big buildings in the southeast.

I have huge klaxons and flashing red lights going off, not just because of hurricane threats.

Good luck if you do it!
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Re: condo hotels
Old 06-16-2005, 12:42 PM   #20
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Re: condo hotels

Thanks TH. I certaining wouldn't risk a whole lot on this deal. But if it works out as projected, the return is big bucks. One reason I am inclined to participate is that we have invested with this developer before with good results and I know him well. In fact, he stole my best secretary from me.
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