Condo-hotels offer operators the opportunity to merge residential with commercial real estate, but operations don’t come without challenges.
REPORT FROM THE U.S.—Is it a condo? Is it a hotel? Some third-party operators answer: Why not both? While that might seem like a simple answer, the operations behind the scenes are a bit more complex.
The intricacy first lies in the definition of a condo-hotel. Generally, these properties are comprised of condo units owned by individuals who can choose to join a rental program that is run by the third-party manager. Once owners join this pool, their condo units can be rented and operated just like hotel rooms.
Aqua-Aston Hospitality manages several different types of properties, including condo-hotel units in Hawaii. When owners join the operator’s rental program, they are provided with accounting, revenue management, sales, marketing, cleaning and maintenance services, as well as protection from liability, when their units are rented as hotel rooms.
“We also manage the front-desk operations at the condo-hotel properties we operate and we work in partnership with owners and the owners associations when it comes to public spaces, such as the lobby, pool and recreational sites,” said Lesli Reynolds, Aqua-Aston’s SVP of operations.
Michael Tall, president and COO of Charlestowne Hotels, which manages five condo-hotel properties with another in the pipeline, said that not every condo-hotel is managed the same way, however. For example, the properties in Charlestowne’s portfolio are managed via an exclusive rental program. That means owners who choose to rent out their units usually want to rent through the onsite rental management company, as complications can occur when they rent on their own or through on offsite agency.
Remington Hotels manages the 238-unit WorldQuest Resort in Orlando, Florida, but it doesn’t require exclusivity from its owners, who also have the option to sign up with another rental company. Remington, however, also manages the public space at the property, including the pool, which can only be utilized by guests of its rental units, unless a monthly access fee is paid.
Condo-hotels also throw another program into the mix: the Condominium Owners Association, which is different from the rental program and comes with a different fee.
“There’s complexity with individual owners who get confused with what is the condo association and what is the rental program. Everyone there is paying into the COA, but not everyone is part of the rental program,” Sloan Dean, COO of Remington Hotels, said.
Working with individual owners and different unit conditions can also be challenging, Tall said.
“Challenges ultimately will come to any condo-hotel, when you have multiple owners, regarding the consistency of the quality of accommodations,” he said. “You may get one owner who thinks his unit is fine and another one wants to put in the finest furnishings, but now you have a 3-star room next to a 5-star one.”
For that reason, he said, a good maintenance program and unit grading system should be put in place to ensure that units are kept up. The key is to manage quality levels while still allowing owners to have the freedom to do as they please with their units, he said, noting many owners purchase condos for personal use first and rental income second. At its condo-hotel properties, Charlestowne implemented a grading system, which labels units from A to C and adjusts room rates based on those grades.
“The key is to have a clear grading criteria so that owners understand where their unit is in it, what the next level looks like, what it will cost in CapEx and a new FF&E program in order to get them to the higher grade,” Tall said. “So, you can show them what their unit pulls in now at a B level, but if you spend $2,500 to get to the A level, here is the level of revenue you would hopefully see—or at least, this is what other owners are making.”
Dean said the uniqueness of individual units isn’t so much a challenge as it is a selling point, especially with today’s consumer preference for something other than the cookie-cutter experience. “That’s why you stay in an independent, for its uniqueness,” he said, pointing to an independent hotel Remington manages that has 200 keys and more than 40 different room types. “It’s no different.”
But he said it’s important to manage customer expectations that not every unit will be the same. “It’s a balance between a hotel and a home. And it’s more consistent than renting a condo from Airbnb,” he said.
Difference, but not a hindrance
Sources said the operations typical of traditional hotels differ somewhat at a condo-hotel.
One of the biggest differences is that operators have to deal with owners who might want to block out a week because they are coming into town for vacation, which will take the room out of commission in a way not seen in a traditional hotel, Tall said.
Beyond that, the staffing model is similar, he said. Housekeeping will take more time, as units tend to have multiple bedrooms and full kitchens complete with dishes.
“Those are just inventory procedures that you would do in a hotel anyway; there’s just more room to cover,” he said.
Dean said in addition to extended housekeeping duties, engineering can become more complicated at a condo-hotel. For example, not every unit will have the same toilets or hardware, which can make streamlined maintenance a little more complex.
Tall and Dean said those differences aren’t huge hindrances to successful operations—or to the value that managing these types of properties can bring to operators.
“Simply put, there are few groups that manage condo-hotels. It gives us an opportunity to create a niche in the market because there isn’t a lot of competition,” Tall said. “And there is a lot of opportunity out there because there are so many mismanaged condo-hotels.”