Orlando Business Journal - March 31, 2006
by Bob Mervine
Staff Writer
Is there a dark side to the condominium hotel craze?
One travel industry leader says the mushrooming growth of condo hotels, particularly noticeable in Central Florida, could turn out not to be the boon many think it will be.
Abe Pizam, dean of the Rosen College of Hospitality at the University of Central Florida, points out a number of potential problems if the sales of large numbers of new condo hotels in the area are not successful. And convention center planners add that they are hesitant to put condo hotel rooms into their mix for future event room bookings.
In the International Journal of Hospitality Management, which Pizam co-edits, he notes that at the end of 2005 there were 108 condo hotels -- with 37,150 units -- under construction nationally.
With the addition of about 4,100 units announced in the last two months, Central Florida's portfolio of condo hotel units -- those under construction or in the pre-sale phase -- now totals more than 15,000.
Big returns & headaches
Pizam says that while developers like condo projects for their easy financing and their high rates of return -- often 30 percent -- operators have to deal with hundreds of owners with tastes and different budgets.
Investors who purchase these units also have an expectation that the value of the unit will appreciate at least as fast as residential real estate, which may not happen. That could cause a massive sell-off comparable to time-share units in the 1970s and 1980s, he says.
Pizam says developers of condo hotels have a real estate mentality, rather than a hotel mentality, and can fail to plan for things like essential back-of-the-house space, making it difficult for operators to do their jobs.
Choice of three concepts
Developer Marc Watson, who is overseeing Universal Boulevard, a planned development on 1,800 acres east of International Drive, explains there are three types of condo hotels, with its own niche and different rate of sales.
Watson's project is home to two of them.
The Westin Village at The Village of Imagine, with 1,000 units planned in phases, is under development by
Intrawest/Orlando Development Corp. This basic condo hotel has a well-known brand to manage amenities such as 24-hour room service, a business center and a health club.
Vista Cay at Harbor Square, being developed by Pulte Homes, is another concept, he says. A 674-unit resort rental community with units that are much larger than hotel rooms. They are created for longer-term rental and outfitted more like a home or apartment.
Watson says the third type combines the other two styles. The Regent Orlando in Winter Park and the new Palazzo del Lago are examples, with both larger units and hotel-size rooms.
In the meantime, the developer worries about the speculative market. "That market is collapsing and it's something our project wants no part of," he says.
Conventional hotels, on the other hand, are exemplified by the 1,330-room Rosen Shingle Creek Hotel, opening this fall, and the recently announced Hilton Orlando Convention Center hotel, a 1,400-room high-rise to be built adjacent to the North/South concourse.
Kathy Canning, deputy general manager of the convention center, applauds that news. "Condo hotels don't always understand the meetings' market," she says. "With a company like Hilton, you know you have a commitment."
Pizam, meanwhile, continues to be cautious. "It's too early to determine whether hotel condos are a stable and secure product," he says. "They could easily become an experiment that failed."
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