Condo Hotels reprise. Question for Perry

Perry,

Last year, you were very high on Condo Hotels in Daytona Beach. In fact, I think you said that you owned one.

Since that time, the real estate market in Florida has absolutely collapsed. Sales for single family homes are down 30-40% year over year. Medium home prices have dropped in high single digits.

I was wondering what you have experienced relative to the value of condo hotel properties. Are they holding their value? Or, are they dropping like the rest of the market?

My theory had always been that the condo hotels would be valued based on the rental rates of hotels in the area and the cash flow that it generates. Not on the equivalent whole condo given the use limitations. As long as fees are reasonable and rental rates remain high, that could provide some stability in the market prices.

However, if the condo hotels were bid up as well as all things real estate in the Florida housing bubble, then the premium above that present cash value would go away and the market value would drop accordingly.

I'm interesting in hearing what you have experienced.

Zillo me this

BocaBum99 said:

Perry,

Last year, you were very high on Condo Hotels in Daytona Beach. In fact, I think you said that you owned one.

Since that time, the real estate market in Florida has absolutely collapsed. Sales for single family homes are down 30-40% year over year. Medium home prices have dropped in high single digits.

I was wondering what you have experienced relative to the value of condo hotel properties. Are they holding their value? Or, are they dropping like the rest of the market?

My theory had always been that the condo hotels would be valued based on the rental rates of hotels in the area and the cash flow that it generates. Not on the equivalent whole condo given the use limitations. As long as fees are reasonable and rental rates remain high, that could provide some stability in the market prices.

However, if the condo hotels were bid up as well as all things real estate in the Florida housing bubble, then the premium above that present cash value would go away and the market value would drop accordingly.

I'm interesting in hearing what you have experienced.

Click to expand...

BB,

I want to back up my experiences with some facts – I use Zillo.com and they have been down for the past few days. So I’ll answer your question when it’s back up.

We own two condo-hotels, one in Daytona Beach and one on Ka’anapali Beach in Maui.

Basically the Daytona Beach unit is depressed, as is most/all real estate in Florida and Ka’anapali is up 15% in 1 year. Now that 15% is imaginary – our unit won’t be built until Feb of 2009. The developer sold another building and comparable 1BR’s were up 15% in the one year.

The real value and potential of a Condo-Hotel is in the “Build Cycle” – the 3 or 4 years needed to build the condo-hotel. If the real estate market is surging then the 20% you put down to control that condo is multiplied by 5 – leveraging.

Our Daytona Beach unit has the owners wanting more than the 45% we net from the rental – we will see if we get it. We use the condo and our relatives use it all the time. So we are not panicked into dumping the unit on the market.

Trump, is of course, going gang-busters with his Hawaiian property. $700 M in sales in 4 hours. So there are opportunities for CHs but the numbers must work out and you should actually plan to use the thing.

So when Zillo is back up I’ll have some numbers to talk about.

My non-scientific opinion is that most condo-hotels benefit the developer and the hotel brand much more than the owners. I have yet to see any proof that anyone has or is making any money in these types of properties.

I own a few studios in the Delta Whistler Village Suites and the resale prices rose from 1998 to 2003 like a staircase (every 6 months they went up in value) and dropped very fast from 2003-2007 to match the prices that were selling in 2000. I believe we are at a bottom of the market now....but who knows....you can get a better ROI with a CD, but the real payoff most people hope for is capital appreciation and selling for a long term capital gain and pay only 15% tax.

I have also found that most hotel-condo require at least 50% cash deposit equity to become break even. If you only want to put down 20-30%...your revenue will NEVER pay for your taxes and mortgage.

Hotel Condos look great on paper....but my experience has been much less favorable than simply buying a real condo or simply paying cash to stay in a hotel.

I have lived in Florida most of my life and Daytona Beach is probably my least favorite place to visit....I can think of 100 other areas in Florida I would rather be.

Hawaii looks promising, but Trump is so good he probably can sell ice to an eskimo.

Some rerasons

To me Maui is vastly under priced!

Only 7% of Maui is fee-simple and just about all the desirable land has already been built upon in the 1970 condo boom that was spawned by the Japanese craze when everyone thought they were invincible in the business world.

The condo-hotel we bought into took 20 years of haggling with the Hawaiians and giving 10% of the land to the county of Maui for a public beach, parking lot, public toilets and showers, to be built. That was the last undeveloped plot of land on Ka’anapali Beach and the reason we bought.

If you buy a condo-hotel to actually use and then it’s rented while you don’t use it and then get to exchange it with other properties, you have just about the best of all worlds.

We bought in Daytona Beach since it seemed to be at the bottom of a downward cycle that would start upwards. The 3 hurricanes that demolished all the trashy motels allowed the developers to pay the owners for the land and the insurance companies paid for the building that was demolished. ALL the land in Daytona Beach, on the ocean, is now held by large developers who have saturated Miami and Ft. Lauderdale.

Daytona Beach is just 75+ minutes from Disneyworld (with no traffic) and offers the best of all worlds for vacationers – stay at the beach and every other day head to Disneyworld – at least that’s the sales promotion that they are ramping up. Our condo-hotel gets 65% of it’s own business from the conventions that it hosts on the convention facilities it owns on the property. There is 1 mile of “no drive” beach within the 23 miles of Daytona Beach area and we are in the middle of that 1 mile.

These are some of the reasons why we bought in Dec of 2005. We plan to hold our unit at least 5 years and use it as a place to “Work out of” in the upcoming years.

condo hotels

Hi Everyone,

Still new to this forum, but have been approached about buying a condo hotel for $65,000. I have been given numbers that make it seem to work but would appreciate any feedback about what I should be looking for and what type of questions I should ask sellers before I commit to this purchase.

Thanks,

Joe Smith

Get it in writing...

JMS said:

Hi Everyone,

Still new to this forum, but have been approached about buying a condo hotel for $65,000. I have been given numbers that make it seem to work but would appreciate any feedback about what I should be looking for and what type of questions I should ask sellers before I commit to this purchase.

Thanks,

Joe Smith

Click to expand...

Track records of the developer, management company, occupancy percentage, and rental rates are key to making the decision to buy a condo-hotel or any real estate investment property!

These are hard to come by – you have to do a lot of investigating and then add in a “Safety margin”. The management contract is THE key document – don’t be rushed into a cursory reading – read it over the course of many days and you should have a list of 20+ questions for the developer.

Get answers, backed up by written documentation to ALL questions. If you don’t get a written answer, either from the developer, or by seeing the answer in writing you DO NOT have an answer.

The developer will squirm out of any question having to do with the purchase as an investment – they will hint at it but will never put it in writing or in front of witnesses.

Use my method of “working the numbers backwards” to come up with a down payment and then plan to hold 5 years. If you can’t hold 5 years you should not invest. The 5 years is needed to allow for a housing downturn and fellow owners flipping their units and the developer clearing out the remaining inventory.

P.S.
Zillow is still down – I really don’t have an alternative to analyzing the real estate market – I’m assuming they will come back up at some point.

PerryM said:

Zillow is still down – I really don’t have an alternative to analyzing the real estate market – I’m assuming they will come back up at some point.

Click to expand...

Zillow is working for me. I used it twice earlier today and just tried it again after seeing your post.

I see the usual home values map, with my target property summarized in its own separate box.

???

Dave M said:

Zillow is working for me. I used it twice earlier today and just tried it again after seeing your post.

I see the usual home values map, with my target property summarized in its own separate box.

Click to expand...

Just tried it again - same error:
"We're sorry. We encountered a problem with this search. Please wait a few seconds and then try again"

It's been like this almost 2 weeks.

I'll try another PC.

P.S.
Works fine on my neighbors PC - I'll figure out what it doesn't like on my PC. Thanks Dave.

P.P.S.
Eureka! Through unbelievable diagnostic techniques and decades of computer knowledge I got the main page working again (If you believe that; I've got a timeshare to sell you).

I don't know; I kicked the computer a bunch of times and Zillow is back - I'll spend some time this weekend recreating my thought process on buying our first condo-hotel and thoughts of where we are going. I just had my annual physical and my doctor kept thumping me on the chest - so I guess this is an accepted diagnostic technique that works.

Zillow is WRONG

Zillow is absolutely wrong on our house........says 1 bath when there are 2 & 1/2. Square feet is totally wrong, too.

Zillow me that…

Jestjoan said:

Zillow is absolutely wrong on our house........says 1 bath when there are 2 & 1/2. Square feet is totally wrong, too.

Click to expand...

Don’t blame the messenger Zillow, blame all the wrong data on record in all kinds of places that Zillow goes to forage for information – Zillow creates none; it draws inferences just like a real live appraiser does.

Both our homes appraise out to a figure that makes sense to us. We did have to update one home as to the number of bedrooms and Zillow did it’s magic and came up with the current figure that is spot on according to our real estate agent.

So if your home is not described correctly you can correct it – you’ve got to prove to Zillow that you are the owner by taking a little quiz; if I remember correctly.

Thanks, I didn't know you could correct it.

PerryM said:

These are some of the reasons why we bought in Dec of 2005. We plan to hold our unit at least 5 years and use it as a place to “Work out of” in the upcoming years.

Click to expand...

Aloha Perry! When we met at Kimo's last month you said you planned, in a few years, on spending half the year in HI and the other half at WM's around the West Coast. Have you changed your mind? Going east coast instead of west coast?

Aloha,
Phil

no, but

philemer said:

Aloha Perry! When we met at Kimo's last month you said you planned, in a few years, on spending half the year in HI and the other half at WM's around the West Coast. Have you changed your mind? Going east coast instead of west coast?

Aloha,
Phil

Click to expand...

Hi Phil, its 23 degrees in St Louis now I do miss the 83 degrees of Maui!

We use the Daytona Beach condo all the time now and will use it for 2-3 more years and then start to look at selling around the 5 year mark. We have relatives that live on the east coast and they use it too.

Perry,

Zillow is working great today. Can you give us an update on how your condo hotel is doing?

If memory serves me right, you purchased this condo hotel at the peak of the Florida housing bubble around 2005.

I see you have a buy and hold for 5 year strategy. Care to tell us how that investment is performing?

A mortgage broker friend of mine told me that banks are no longer financing condo-hotel pruchases and buyers need 100% cash. I think this alone hurts the market more than anything else.

I hear condo-hotels in florida are now listing well below 50% of original price with zero buyers as there is no income after the fees are paid and that assumes a zero mortgage.

Vacation Dude said:

A mortgage broker friend of mine told me that banks are no longer financing condo-hotel pruchases and buyers need 100% cash. I think this alone hurts the market more than anything else.

I hear condo-hotels in florida are now listing well below 50% of original price with zero buyers as there is no income after the fees are paid and that assumes a zero mortgage.

Click to expand...

Wow. This might be the time to buy one, then. I'll need to check it out. Go in offering 25% of original purchase price. Gotta make sure it doesn't go under, though. That would be the biggest concern.

BocaBum99 said:

Wow. This might be the time to buy one, then. I'll need to check it out. Go in offering 25% of original purchase price. Gotta make sure it doesn't go under, though. That would be the biggest concern.

Click to expand...

I heard about a condo-hotel in Florida that originally sold for over $500,000 or so for a 2 bedroom and now is listed for $150,000 (I think that was a short sale or foreclosure). I will see if I can get the listing.

This is the property
http://doubletree1.hilton.com/en_US/dt/hotel/FLLTSDT/index.do

Here is a listing for $238,000 when the went up to well over $500,000 at one point. I am sure there are tons of lower units, but this was a quick search.

http://www.realtor.com/search/listi...srloc=33304&bd=3&fhpg=1&lid=1104335543&lsn=89

FYI - I have no financial interest in these links.

also been watching condo-hotels wondering ....

WCI's 'Resort at Singer Island' ( Palm Beach FL area ) is one such location under a lot of heat from unhappy 'investors' who believed the sales pitch and rental projections - they have a pending class action lawsuit ( google it ) with papers like Palm Beach & NY Times doing articles earlier in year.

Just wondering how low these prices can go and would it ever be priced at level that is too low to resist...

Greg

Here is from Sherpa on unhappy owners ... http://www.sherpareport.com/prc/condo-hotel-owners-uproar.html

Knew I would find it, sooner or latter.

You have to think this has to reflect in some falling prices ad possibly a good deal for the 2nd gen buyer

Greg

Condo hotel owner association ...

Hi

Seems like I want to keep this thread alive ( last 3 posts from me

Just saw this link .... http://www.nacho.us/ $50 for owners of condo units - anyone on TUG a member ??

Greg

Here is a listing for $238,000 when the went up to well over $500,000 at one point. I am sure there are tons of lower units, but this was a quick search.

http://www.realtor.com/search/listin...4335543&lsn=89

Click to expand...

As a microcosm of the market, this is interesting. The current asking price (on Jan 23/09) is 189,900. That is 20% less than what they were asking 1 month ago. I wonder what type of offer they'd take on this...

Michael

bizaro86 said:

As a microcosm of the market, this is interesting. The current asking price (on Jan 23/09) is 189,900. That is 20% less than what they were asking 1 month ago. I wonder what type of offer they'd take on this...

Michael

Click to expand...

offer $100k and see what happens

Perry's response...

Spiderman said it best:

“With great power comes great responsibility”

I just stumbled upon this thread 2 minutes ago and the hit count is 1,160 and there are 21 replies.

Wow, I now understand what Spiderman was talking about.

I get accused of hijacking threads all the time – when I start to post the counter goes ballistic. This one I didn’t start didn’t participate in (except for this 1 post this year) and somehow I’ll probably be accused of hijacking this one too.

I thank everyone involved – my supporters and foes. I feel like I’ve gotten a workout without actually working out.


So this will be my one and only post this year and let’s see just how high the count goes.

There's always next year...

Vacation Dude said:

I heard about a condo-hotel in Florida that originally sold for over $500,000 or so for a 2 bedroom and now is listed for $150,000 (I think that was a short sale or foreclosure). I will see if I can get the listing.

This is the property
http://doubletree1.hilton.com/en_US/dt/hotel/FLLTSDT/index.do

Here is a listing for $238,000 when the went up to well over $500,000 at one point. I am sure there are tons of lower units, but this was a quick search.

http://www.realtor.com/search/listi...srloc=33304&bd=3&fhpg=1&lid=1104335543&lsn=89

FYI - I have no financial interest in these links.

Click to expand...

Boy am I sorry that did not notice this post earlier. The doubletree property in Ft. Lauderdale would have been a great buy.

Unfortunately, it's hard to fathom you won't have plenty more opportunities.