Savvy Buyers Quietly Acquiring Key Condo Hotel Locations
Craig Kushen has invested in businesses, restaurants and investment properties of all shapes and sizes; but he “became tired of investing in deals that took a lot of his time to manage.” In 2000, Kushen was exposed to the idea of condo hotels in Hermosa Beach, not far from his inland Orange County, California home. Originally, the beachfront condo hotel units were selling for around $200,000, but he did not understand the concept. By the time he decided to buy his Beach House (www.beach-house.com), the price had risen to the low $300’s. Today his unit might resell over $700,000. “Initially I thought $200k was too much to pay for something where you have limited use of your unit. But I can’t use all days allowed, so it’s great for providing gifts to my family and perks for business associates” so they can enjoy a couple days at the beach too. At the price that he paid, the property produces solid cash flow and is rapidly reducing Kushen’s mortgage debt “long-term it’s been a great investment for me with no hassles, pure enjoyment.”
“The best kind of investment one can make is a fun investment” Kushen explains, and he refers to his condo hotel units as a hassle-free second home. He adds, “you need to be careful though. Not every project is equal. I look for a unique locations that can’t easily be duplicated, and where the hotel is likely to obtain higher than a 70% occupancy rate.” He feels this requires a hotel that will attract both weekend guests and convention business travelers. “As a business traveler I know how important staying close to the convention center and getting that extra 10 minutes of sleep can be” says Kushen “another part of my evaluation process is making certain interests of management and condo owners are aligned.” Working with this methodology, Kushen purchased two more condo units at the Hard Rock Hotel San Diego (www.hardrockcondosandiego.com), which opened this past fall.
“The Hard Rock brand is one of the most recognized in the world and San Diego is one of the top 5 visited destinations in the country. Since the opening of the Padre’s Stadium downtown and a host of new bars, restaurants, and shops, the downtown core – called the Gaslamp Quarter – is where all the action is these days” Kushen claims. Condo hotels typically offer more than a traditional condo, Hard Rock offers lifestyle options with bars by Rande Gerber, and the signature restaurant Nobu. “People want more than a hotel room when they travel these days. So all that takes care of the investment side of things for me. As for the fun, we [the owners] have a team on site 365 days a year to manage our experiences, and everywhere I wander throughout the property, everyone knows who I am and that I own – which translates into what the developer refers to as ‘life behind the velvet ropes’”.
Recently, Kushen gave his condo hotel unit to his parents for a fun weekend and reported, “they have never been treated so special” and it’s costing him close to nothing. His Beach House condo hotel is making him money each month, and the Hard Rock project is close to that, after only being open a few months.
In 2008 it is projected that 3,212 new condo hotel units will open, most are designed to attract high net worth clientele. In fact, nearly one-third of all condo hotel units sell for cash at an average sales price of $623,000 according to the National Assn of Condo Hotel Owners. “The targeted buyers of these condo hotel units are affluent and less effected by slow downs in the economy. Today, these buyers are seeking out three key factors; (i) World Class destinations with services, amenities, and activities that fit their lifestyle, (ii) a safe haven, and (iii) a sense of limited supply and/or value. “When condo hotel buyers see this combination of characteristics in locations which represent their desired lifestyle, they buy.” said Dante Alexander, President, National Association of Condo Hotel Owners (www.nacho.us) “considering today’s real estate environment, many of these properties are available at a significant value.”
Another Hard Rock Hotel San Diego buyer is Frank Turner, one of a growing number of Canadians to buy second homes in the USA. “Hard Rock was a perfect vacation property purchase for us. The location is superb with access to the hundreds of entertainment options in the Gaslamp District, Petco sporting events, and the Rock Royalty services provided by the hotel” (owners at Hard Rock are referred to as Rock Royalty). For savvy condo hotel buyers the purchase is about more than real estate. They are buying into private club-like services and perks. Each condo hotel investment is a combination of second home, investment property and club membership. For Turner, the Hard Rock San Diego was his third strategically located condo hotel purchase. “I have a condo hotel on the ocean on Vancouver Island, and a ski lodge at Whistler, BC, so having a condo in the middle of the excitement of San Diego fits our lifestyle just right.” Turner recently got engaged at the Hard Rock, “all the red carpets were rolled out for me and my fiancé. Rock Royalty certainly described our experience.”
The emerging trend suggests that condo hotel buyers typically ‘collect’ locations, as the cost of ownership, netting out rental income, is dramatically less than traditional second home ownership, allowing them to own multiple second home locations for much less than one traditional second home.
Another theme is the desire to diversify real estate holdings into multiple locations and own property with multiple or mixed-use. Condo hotels are often both vacation properties and business or convention destinations. They are commercial hotels and residential condominiums. Owners use their condo hotels as business tools, charitable gifts and personal vacation or weekend escapes.
Owners cite their desire to spend time in future retirement years in exciting and different locations, and enjoy services not readily available to the mass public. Condo hotel ownership and the perks that come along with being “an owner of the best hotel” in a desirable market seem to stand on an equal footing with the income return. Turner says his purchases were “50% investment property, 50% personal use” motivated. At the time of this interview Turner was in Hawaii where he was shopping for his fourth condo hotel.
78.2 million baby boomers may think this is a better way to retire too, if just 5% of this population buys only one unit, 39,100 condo hotel units could be sold in the next decade, more than twice as many hotel rooms as there are in San Diego today.
By: Bob Waun
Waun recently authored “Besting: Better Nesting” www.betternesting.com a book about the dramatic shift second home market being influenced by the Baby Boomers desire for better lifestyles in retirement.
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