Drawing from over 25 years of experience in commercial real estate, Loren Balsam, hotelAVE’s Chief Investment Officer, shares his insights on navigating the complex world of hotel development with a residential touch.
This article tackles the hurdles of traditional hotel development and the growing preference for condo hotels. Success in this arena requires careful negotiation of terms, cost considerations, and a grasp of the legal and physical nuances.
Condo Hotel Developments and Hotels With Residential Rental Programs Are Fraught With Complexity
While subpar development yields and challenging financing markets stall traditional hotel development, some developers are pivoting to a condo hotel or more typically, hotel with for sale condominiums and an optional rental management program as a path to getting out of the ground. If developers can extract most, if not all, of their development costs through a sale of the hotel/condo inventory and finance the building as for sale condo units then this may be an easier path to development.
Despite a potentially easier route of construction finance, condo hotels and hotels with a residential rental management program add another layer of both transactional and operational complexity. On the legal side, the sale of hotel condominiums requires the establishment of a condominium association (an “Association”) with a budget and bylaws and the requirement of at least annual meetings of owners. Moreover, condominium associations are often creatures of state enabling legislation with varying degrees and types of restrictions on their creation and operation.
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