Mary Godleski for The New York Times Brian Greenberg in his
hotel room at the Watson's Regency Suites in Ocean City, N.J.
He bought the unit in 1996 for $112,000.
Don't Want to Leave the Hotel?
Buy the Room
By Jennifer Alsever
IMAGINE loving a hotel room so much that you buy
it, mortgage and all.
That is what Tony Garcia and an investment
partner will do this month when they close on the sale of Room
309 at the Hotel Telluride in Telluride, Colo. The price is
$279,000, complete with maid, concierge and room service.
The definition of a second home continues to
stretch, as buyers increasingly invest in rooms in what are
called condo hotels. Unlike traditional time shares, which give
owners access to properties for defined periods, condo hotel
units are fully owned and deeded properties that are rented by
a hotel when the owner isn't using them.
At Hotel Telluride, Room 309 looks like any
other upscale hotel room, with a king-sized bed with leather
headboard and a bathroom with granite countertops. The room has
also been renovated to include a kitchenette with microwave,
sink and mini-refrigerator.
As part of the purchase, Mr. Garcia, a
photographer in Los Angeles, or the investment partner, Justin
Page, an architect in Phoenix, can use the room at any time -
up to a total of 60 days a year. During the remainder of the
year, the hotel management can rent it out to guests for up to
$395 a night. Mr. Garcia and Mr. Page get 40 percent of the
revenue from room rentals; the hotel gets 60 percent.
Mr. Garcia acknowledges that he is paying a
hefty price for one small room, but he says it's worth it.
"I love the town of Telluride, and there's
nothing left really for that price, not a lot of new
construction," said Mr. Garcia, 49. "And I think people will
enjoy coming for the amenities of the hotel. It's a popular
The condo hotel concept has been around for more
than a decade, but chains like Marriott, Remington, Westin and
W Hotels are promoting them more than ever as a way to raise
cash for expansion without going to investors or banks. For
hotels, construction costs have climbed and financing can be
hard to get, primarily because the industry has yet to return
to the kind of operating profits it registered before Sept. 11,
"Condo hotels are an explosive part of the
lodging industry," said James R. Butler Jr., who leads the
global hospitality group at the law firm Jeffer, Mangels,
Butler & Marmaro in Los Angeles. "Baby boomers are looking for
second homes. A lot of money has come out of the stock market
and into condo hotels."
Up to 105 condo hotel projects are planned or
under construction nationwide, and will eventually produce
29,042 hotel rooms for sale in vacation spots like Las Vegas
and Miami and Orlando, Fla., according to Lodging Econometrics
in Portsmouth, N.H., which tracks real estate deals in the
hotel industry. Those units range from small, traditional hotel
rooms like Mr. Garcia's to three-bedroom quarters that can be
separated and rented out as separate rooms.
But are hotel rooms really a good buy? It's
difficult to say.
The payoff can depend on factors like occupancy
rates and the split of rental income. So a buyer must consider
the location's popularity and growth potential as well as the
hotel's general quality and reputation - and have enough cash
to cover expenses that could arise if the room is too often
Owners typically get 30 percent to 60 percent of
proceeds from room rentals. At Hotel Telluride, a $279,000 unit
might cost an owner $16,570 in annual mortgage payments if he
or she put down 20 percent on a 30-year loan at 6.3 percent
interest. But that owner could realize $24,000 in rental income
if he or she received a 40 percent share on a room that rents
for $300 a night 200 days a year. That income must be reported
for tax purposes. Any day an owner stays, there is one less day
that rental income can be collected.
What owners may gain in convenience in a condo
hotel, however, they can give up in control. Individuals own
the room, but the hotels typically wield most of the power.
While some developers sell all the units to individuals, who as
a group can then hire and fire management, a number of hotels
do not give owners much say in operations, whether the concerns
are poor food, shoddy service or ugly drapes. Nor do they
always provide access to the resort's finances and overall
"That would stop me," said Jim Miller, an
investment adviser in Columbiana, Ohio. "That's like buying a
stock where you're not allowed to see a chart of the last five
Hotel owners argue that they cannot deal with
hundreds of owners telling them how to run their business. Yet
to Mr. Miller, the condo hotel concept appears to carry the
same risks as time shares did in the late 1980's, when some
owners would ultimately lose their investments after a number
of resorts fell into disrepair or went bankrupt.
For maintenance and services like utilities and
cable television, some buyers may pay monthly homeowners'
association fees. A typical fee may be $350 a month, though it
can be lower or much higher. Other resorts take 1 or 2 percent
of rental sales for a reserve account for upgrades, like new
carpeting or bedding.
The money put into the reserve account cannot be
deducted on income taxes until management actually spends the
money on specific upgrades. Some hotels charge extra for daily
housekeeping, for instance, or for breakfast in the hotel's
restaurant when the owners are in residence.
Some buyers have watched the value of their
condo hotel units surge in recent years. Brian Greenberg bought
his one-bedroom unit at the Watson's Regency Suites in Ocean
City, N.J., for $112,000 in 1996. He estimates that it is now
worth $400,000. But he did not buy it as an investment. Rather,
the payoff is a summer home for his family.
"Ultimately, it costs me a couple of thousand
dollars a year for having a property on the Jersey Shore," he
said. "The concept is nice. When I go there, the room is clean,
and when I leave, they clean up after me."
That kind of appreciation in value is not
guaranteed, because buyers may be getting in at the top of a
housing bubble. Condo hotel units tend to sell at a premium,
costing $250,000 to $3 million, depending on location and size,
while their appreciation tends to stay equivalent to that of
traditional condominiums, said Karen Johnson, a vice president
in Los Angeles for Jones Lang LaSalle Hotels, a consulting
firm. "You won't get rich on condo hotels," she said.
STILL, condo hotels have been popular for many
companies, including Great Wolf Resorts in Madison, Wis. Great
Wolf is to build its third resort, in Traverse City, Mich.,
with rooms at $369,000, after it sold out of similar units at
two other hotels, in Blue Harbor, Mich., and in Wisconsin
Dells, Wis., before they even opened. The resorts feature large
indoor water parks.
Rich Rosko of Lake Villa, Ill., will put his
money on a unit in the Traverse City resort. He already owns
property at the other two Great Wolf resorts, and at condo
hotels in Myrtle Beach, S.C., and Lake Geneva, Wis.
"I like the rental income," Mr. Rosko, 48, said.
"The management takes care of marketing, bringing in the
customers. They take a credit card. With a rental house, you
can get bad tenants who can destroy your house, or you can't
get them out."
Mr. Rosko makes his living providing coffee
supplies to corporate offices. But eventually, when he retires,
he hopes to own a condo hotel unit in every major United States
travel destination. "My job when I retire is to go check each
of them out," he said.