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They have been around for a long time. I think the concept first started in the 1950's and grew and morphed from there. You've probably stayed in one and not even known it. The Ritz Carlton is the newest one in Waikiki.
A condo building is built. The units are sold to individual owners. A brand name hotel management company is hired to operate a front desk just like a normal hotel. And they rent the units to travelers and revenue share with the unit owners.
They are typically found in larger cities and resort destinations. To the average tourist, it looks acts and feels exactly like any hotel you've been in, except the person who owns the unit is actually an individual behind the scenes, not a corporation.
Typically a person buys a unit as a vacation home in a resort area and then let's the unit be rented out under the hotels name when the owner is not using the unit in order to generate income while not using the unit.
Thanks for that info on condotel, WaikikiBoy. Learn something everyday.
They make great investments if you buy when tourism has been in the gutter for a good year or so. Obviously it's a terrible time to buy right now.
I bought a whole slew of them back in the day when they were traded around like POG. Bamboo, Palms, Luana. With at least these three projects (in the early/mid 2000's) you could stand in line, choose a unit, sign a contract with $5K cash and then immediately turn around and sell them for $10-$15K to the next guy. You didn't even need to go through escrow - you were only assigning contracts. Eventually they closed that loophole but it was fun times for a little while. For those that closed in escrow and held on for a year or so, making $100K or more was pretty common.
Back then, land and building owners would renovate (and often rebrand) under-performing hotels, CPR the units and sell them as fee simple condos - some with kitchens (dwelling units) and others with no kitchens (lodging units).
I would never touch a lodging unit. Those are super risky. When times go sour (i.e. tourism tanks) you can at least legally rent a dwelling condo unit unrestricted as long term - forever if you wish. Many lodging units require that they be rented for less than 6 months. Some AOAO's have even shorter term stay requirements. Many banks won't touch lodging units (FHB, BOH, et al). Some will touch them but the interest rates are obscene... and expect to put at least 40% cash down.
I have several friends that own(ed) in the Ala Moana. Some bailed because the maintenance fees went through the roof (imagine $3.25/SQUARE FOOT ). Others bailed because the hotel was raping them on absurd hotel mgmt fees. Some held on and wish they sold at a loss. Ala Moana came in late in the "condotel" game; a lot of people got hosed on that project.
But I also have other friends that own in the Luana and Royal Garden. Those perform well (solid/competent management, reasonable fees) as long as you have a full kitchen.
I heard through several sources the Ritz Carlton is returning a 0% CAP rate. Yes, zero percent (that means they generate zero cash flow even if purchased ALL CASH). People buy in those ridiculously opulent projects only to park money and hope the properties appreciate over time.
I gutted and renovated two units in the Waikiki Grand in the late 90's/early 2000 (units facing the zoo/DH with twist-da-neck ocean views). Back then it was an absolute dump - the entire building was downright scary. Renovated units today (facing DH) sell for well over $1,000/SF which is crazy because the units have no parking, the building is very old (built early 60's) and AOAO dues are nearly $2/SF. I believe parking stalls are available for individual purchase but cost $70K-$80K each.
Very interesting ... I like condo hotels a lot due to the flexibility it affords me in vacationing and still earning income on the property, but have found it best not to buy in when the project is initially built. The Ritz pricing was not too bad early on, except for the 50% down payment, but got ridiculous very quickly.
In general, new condo hotels are not going to see their true returns for a couple of years ... any new hotel takes time to build repeat business and reach peak efficiency. So the 0 pct CAP rate is a little misleading. No doubt the project is a bit overpriced right now tho.
Condotel properties aren't "investment" properties. Even in boom times (now) those properties don't appreciate like other single family or condos. A step above timeshare is a better description.
This is so ignoramus my jaw droppped to the floor. Condotels are REAL PROPERTY nothing like shares of time. I bought one in the 1980s, a unit on the canal of Ala Wai, for way less than $100k. Now approaching $400k. In the meantime a whole lot of cashflow.
You just cant go wrong when the numbers work. Too bad i just bought one, i didnt understand RE metrics in the 1980s. Just bought for the YUCKs.
Buying one now just depends on the numbers. If you want a job and doing AIRbnB rentals for the next 15 years you might be able to make it pay. Long term rentals just dont make sense @ todays price points.
I bought one in the 1980s, a unit on the canal of Ala Wai, for way less than $100k. Now approaching $400k.
While obvious to many - you actually think that's a good ROI over that many years????? I'm not sure I'd be bragging about that. Even a $50K investment in practically anything considered "real property or equities" in let's say 1985 (even on the mainland) should be worth nearly $1,000,000 (well under 10% annual return) in 2016
To illustrate just how awful that investment was - typical Kailua houses in the $1.2 million range went for roughly $500,000 in 2000 (yes, 2000 not 1985). You could've put 10% down in 2000 let alone 1985 and done far better.
That's how bad a condotel investment is.
Last edited by whtviper1; 08-30-2016 at 09:11 AM..
I sense sour grapes. Cherry picking data is what socialists do to prove a point..................hahahaha. Ya know someone who invested in Buffet when he was an unknown would be worth millions upon millions today. Same goes for Apple stock. Same goes for investment in Peter Lynch,s fund @ Fidelity,, yadda, yadda, yadda.
Why cant poor people be happy for people who make money? hahahahahaha.
I feel for those who sold HI and moved to Vegas at its peak. They thought they had it made when it would have been better to just stay put in Waimanalo.
Last edited by ChinkChink; 08-30-2016 at 08:35 PM..
You could have bought practically ANY property on Oahu with $50K in the mid 80's except condotel and do way better - like double better. That type of investment in the mid-80s should have yielded over $1 million by now
In general, new condo hotels are not going to see their true returns for a couple of years ... any new hotel takes time to build repeat business and reach peak efficiency. So the 0 pct CAP rate is a little misleading. No doubt the project is a bit overpriced right now tho.
The zero percent cap rate is estimated on anticipated RevPAR after the hotel is ramped up and at full operation efficiency (insert projected occupancy rate here - ??).
The hotel takes 60% of the gross room revenue (after the lower-than-average occupancy rate associated with luxury brand hotels)... leaving you with 40% of the revenue AND all the bills including commercial RPT, insurance, high maintenance fees, utilities (if applicable), TAT, GET, interior finishes refurbishing allowance and all the interior upkeep (appliances, fixtures, etc etc). You do get the value of depreciation... but that is recaptured if you sell at a profit.
You may get lucky and return a 2-3% CAP if you rent when times are stellar... but tourism (like all industries) is cyclical in its performance. We've been breaking occupancy and spending records year after year. How long do you think that will last?
You may get lucky and return a 2-3% CAP if you rent when times are stellar... but tourism (like all industries) is cyclical in its performance. We've been breaking occupancy and spending records year after year. How long do you think that will last?
I think with Zika and terrorism means Hawaii will continue to have a blur between high and low season. Hurricanes slamming into Hawaii or a global meltdown can stop the gravy train. Huge drop off in Caribbean and 3rd world Pacific Island tourism.
The zero percent cap rate is estimated on anticipated RevPAR after the hotel is ramped up and at full operation efficiency (insert projected occupancy rate here - ??).
The hotel takes 60% of the gross room revenue (after the lower-than-average occupancy rate associated with luxury brand hotels)... leaving you with 40% of the revenue AND all the bills including commercial RPT, insurance, high maintenance fees, utilities (if applicable), TAT, GET, interior finishes refurbishing allowance and all the interior upkeep (appliances, fixtures, etc etc). You do get the value of depreciation... but that is recaptured if you sell at a profit.
You may get lucky and return a 2-3% CAP if you rent when times are stellar... but tourism (like all industries) is cyclical in its performance. We've been breaking occupancy and spending records year after year. How long do you think that will last?
It will last a long time. Honolulu just doesnt have enough hotel rooms. Middle class and poor Americans are just priced out of the HI market. Airbnb'ers do well in HI due to the hotel shortage. Its hard to book a room in HNL weekdays for under a $100.
The zero percent cap rate is estimated on anticipated RevPAR after the hotel is ramped up and at full operation efficiency (insert projected occupancy rate here - ??).
The hotel takes 60% of the gross room revenue (after the lower-than-average occupancy rate associated with luxury brand hotels)... leaving you with 40% of the revenue AND all the bills including commercial RPT, insurance, high maintenance fees, utilities (if applicable), TAT, GET, interior finishes refurbishing allowance and all the interior upkeep (appliances, fixtures, etc etc). You do get the value of depreciation... but that is recaptured if you sell at a profit.
You may get lucky and return a 2-3% CAP if you rent when times are stellar... but tourism (like all industries) is cyclical in its performance. We've been breaking occupancy and spending records year after year. How long do you think that will last?
I have not looked at the Ritz's actual rental program, but 60% is far beyond anything I have seen from a rental program. Are you sure it's not 40% gross to the hotel? Every condo hotel I've seen in Hawaii will make money if you own the condo in cash. I'm not sure how you get to a 0 pct return in a rental program.
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). Others bailed because the hotel was raping them on absurd hotel mgmt fees. Some held on and wish they sold at a loss. Ala Moana came in late in the "condotel" game; a lot of people got hosed on that project. 
