Trendsurfing: Hotel-room ownership (The Times)
By David Rowan
Love your hotel room? Now you can own it. As the hotel industry looks for new ways to make money, the idea of selling off individual rooms is suddenly hot. Your check-out bill might set you back a few hundred thousand pounds, but you earn cash back each time the room is rented out. And, of course, you get a five-star holiday-home as part of the deal.
They are known as "condo hotels", or "cotels", and they are springing up from Exeter to the Everglades. Developers love the concept, as it provides money up-front from investors tempted by potential capital as well as rental returns. There are no guarantees that they will necessarily make their money back, but that hasn't stopped them signing up by the hundred. In Florida alone, demand is reported to be strong enough to support around 30 current projects from Miami to Key Biscayne.
Here's how it works. Once you have bought your room, you typically join an owner's club giving you access to all the hotel's facilities, from fitness suite to maid service. You can of course stay there yourself, but whenever your room is unoccupied the hotel will make it available in its general rental pool. When a paying guest checks out, the revenue is split roughly equally between you and the hotel management. The front desk takes care of everything from laundering sheets to updating furnishings.
At Intrawest's Mont Tremblant resort in eastern Canada, £270,000 will buy a two-bedroom suite at the elegant Ermitage du Lac hotel that will rent out for £330 a night. "You choose when you stay, which on average amounts to about 14 nights a year," explains Michel Naud, a local real-estate broker. "The revenue from the rest of the year will cover your expenses and a good proportion of your mortgage payment." The 69-room hotel is managed by a specialist company, Boutique Hotels, which takes 50 per cent of the revenue. Whenever you want to use your room, you simply call in advance.
The catch, it seems, lies in the high "maintenance" fees, which for the Ermitage du Lac suite add up to almost £8,000 a year. That would comfortably buy you 14 nights in some of the world's most luxurious hotels. Still, the developers are betting on capital appreciation to lure prospective buyers. When the British developer GuestInvest offered 20 fairly small rooms in its Notting Hill hotel two years ago, it claims to have sold out within eight weeks at prices starting at £140,000. The company is now marketing 153 further rooms in hotels in Cheltenham, Exeter and Manchester, all on 99-year leases.
Does it stack up as an investment? GuestInvest likes to quote rental returns "in excess of six per cent", but some in the industry worry that the glamour of being an amateur hotelier may blind owners to the considerable risks. What if a hotel proves to be so badly run that owners' income suffers? No problem, says Michel Naud in Tremblant: the residents' association can simply re-award the management contract. But further questions remain. What if re-sale values prove less optimistic than the forecasts? What if the monthly maintenance bills shoot up? What if condo hotels prove to be the next time-share bubble?
For now, that's not too much of a concern for Donald Trump, currently building 200 condo hotel units into his latest Chicago tower. Just don't expect him to throw in the mini-bar.
(The Times, London, February 12 2005)
Love your hotel room? Now you can own it. As the hotel industry looks for new ways to make money, the idea of selling off individual rooms is suddenly hot. Your check-out bill might set you back a few hundred thousand pounds, but you earn cash back each time the room is rented out. And, of course, you get a five-star holiday-home as part of the deal.
They are known as "condo hotels", or "cotels", and they are springing up from Exeter to the Everglades. Developers love the concept, as it provides money up-front from investors tempted by potential capital as well as rental returns. There are no guarantees that they will necessarily make their money back, but that hasn't stopped them signing up by the hundred. In Florida alone, demand is reported to be strong enough to support around 30 current projects from Miami to Key Biscayne.
Here's how it works. Once you have bought your room, you typically join an owner's club giving you access to all the hotel's facilities, from fitness suite to maid service. You can of course stay there yourself, but whenever your room is unoccupied the hotel will make it available in its general rental pool. When a paying guest checks out, the revenue is split roughly equally between you and the hotel management. The front desk takes care of everything from laundering sheets to updating furnishings.
At Intrawest's Mont Tremblant resort in eastern Canada, £270,000 will buy a two-bedroom suite at the elegant Ermitage du Lac hotel that will rent out for £330 a night. "You choose when you stay, which on average amounts to about 14 nights a year," explains Michel Naud, a local real-estate broker. "The revenue from the rest of the year will cover your expenses and a good proportion of your mortgage payment." The 69-room hotel is managed by a specialist company, Boutique Hotels, which takes 50 per cent of the revenue. Whenever you want to use your room, you simply call in advance.
The catch, it seems, lies in the high "maintenance" fees, which for the Ermitage du Lac suite add up to almost £8,000 a year. That would comfortably buy you 14 nights in some of the world's most luxurious hotels. Still, the developers are betting on capital appreciation to lure prospective buyers. When the British developer GuestInvest offered 20 fairly small rooms in its Notting Hill hotel two years ago, it claims to have sold out within eight weeks at prices starting at £140,000. The company is now marketing 153 further rooms in hotels in Cheltenham, Exeter and Manchester, all on 99-year leases.
Does it stack up as an investment? GuestInvest likes to quote rental returns "in excess of six per cent", but some in the industry worry that the glamour of being an amateur hotelier may blind owners to the considerable risks. What if a hotel proves to be so badly run that owners' income suffers? No problem, says Michel Naud in Tremblant: the residents' association can simply re-award the management contract. But further questions remain. What if re-sale values prove less optimistic than the forecasts? What if the monthly maintenance bills shoot up? What if condo hotels prove to be the next time-share bubble?
For now, that's not too much of a concern for Donald Trump, currently building 200 condo hotel units into his latest Chicago tower. Just don't expect him to throw in the mini-bar.
(The Times, London, February 12 2005)
posted by David Rowan at Saturday, February 12, 2005
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