Industry Overview

BusinessWeek calls condo-hotels “the latest trend to hit the hospitality industry.” CNN/Money refers to them as “the development du jour.” Adds Dante Alexander, president of the National Association of Condo Hotel Owners (NACHO), “The condo hotel concept … has exploded in the past three years and dominates the industry today because it has tangible advantages both for the consumer and the real estate developer.”

NACHO defines a condo-hotel as “a fee-simple purchase of a deeded condominium unit/guestroom. When not occupying the room, the owner may make the condo hotel unit available to guests at the hotel through a rental management or leaseback program. Any room revenue generated through the program is shared between the unit owner and the developer/managing partner.”

Condo-hotels are typically upscale, full-service developments in strong hotel markets - either popular vacation destinations or large cities where suburbanites frequent hotels for business or leisure purposes, according to hotel industry research firm Lodging Econometrics.

Condo-hotels differ from timeshares or traditional vacation homes in several ways:

• Unlike timeshare owners who are limited to using their units for only a few weeks a year, condo-hotel owners have unlimited use of their units. When not being used, the owner has the option of having the management company rent the unit and share the revenue with them.
• In contrast to traditional vacation homes, condo-hotel owners are relieved of the burden of maintaining their property; they have access to high-end hotel amenities and the income from the rental program can help offset expenses.

As construction costs continue to rise, hotel developers are finding the condo-hotel concept appealing as a way to move much of the upfront development costs to the condo owners and still retain ownership of meeting facilities, restaurants, spas and some traditional hotel rooms.