“That tells me something,” says McCabe of McCabe Research and Consulting. “Investors are looking at these and saying, ‘Are these really going to be a winning proposition?’ I think investors would say their greatest disappointment is that their rental returns have been minimal compared to initial projections. In many cases, the rental income has not even [covered] the monthly maintenance fees for the unit. When you throw in insurance and other things, they have been somewhat of a losing proposition.”
More recently, in December, The Related Group’s $200 million luxury Florida condo-hotel, Icon Celebration, was put on hold. (Related executives declined to comment on this deal.) But the developer is going ahead with a number of other hybrids, including The Viceroy Hotel in Snowmass, Colo.; the 409-room W South Beach Hotel and Residences in Florida; and The Grand, a 3.6 million-square-foot development in Los Angeles that will include a 295-key Mandarin Oriental Hotel crowned with 266 luxury condos.
On the upside, these hybrids tend to be luxury product, which seems to be most insulated from the housing bust. “With the latest residential real estate adjustment, the most successful [condo-hotel] projects are rare air, very dense, high-demand products in difficult to develop locations,” says Alexander of the National Association of Condo Hotel Owners.
Location is critical, McCabe agrees. “Are these projects close to restaurants and shopping? In Vegas, are the casinos attached or part of multi-use projects with on-site gambling?” he asks.
These days, just claiming a beachfront location, be it South Beach or Fort Lauderdale, isn’t always enough.
GAME ON
Condo-hotels go niche, catering to sports fans.
Devoted college alumni trek miles to catch their alma mater’s football games. But finding a place to stay during a busy football weekend, especially in a small college town, can be tougher than earning that diploma. Enter Gameday Centers Southeastern, a Duluth, Ga.-based developer that partners with universities to develop condo-hotels within close proximity of college athletic facilities.
“People are crazy about their colleges and their sports programs,” says Dana Baus, vice president of sales for Gameday Centers. “The company’s original president came up with the idea, and our first project at Auburn University sold out almost overnight, so we added another 20 units, which sold out really quickly as well.”
Gameday’s projects mark a geographic shift for condo-hotels, which are typically located in resort towns or big urban locales such as Chicago and New York. Dante Alexander, president and CEO of the Scottsdale, Ariz.-based National Association of Condo Hotel Owners, expects to see more niche products surface in secondary markets. “The condo-hotel is ideal for any event or activity located in an area with periods of undersupply,” Alexander explains.
Gameday has built projects at Auburn University in Alabama, the University of Georgia at Athens, and Florida State University, and is planning to develop one at the University of Tennessee at Knoxville. The communities, decked out in college-themed décor, offer single suites up to three-bedroom/three-bath penthouses. Amenities include restaurants and clubrooms. Owners use the units for game days and other school events and have the option to enter the rooms in a rental program.