Condo-hotel concept latest building boom
By Douglas Hanks III, Miami Herald
Posted on Mon, Jan. 24, 2005
It
took the Falor family only 21 months to assemble one of the most
diverse hotel portfolios in South Florida -- seven prime properties
from Islamorada to Coral Gables.
''What is the old saying? Make money while the sun shines?'' Robert
Falor, 36, said during a recent lunch at The Tides, the 45-room
celebrity haunt in South Beach his family acquired last year for a
whopping $588,000 a key. ''The climate is perfect to execute our
business plan.''
He wasn't talking about the weather -- at least not directly.
Instead, the president of the Chicago-based Falor Cos. meant the
current boom of condo-hotel properties, where hotels sell off their
rooms individually to buyers.
More than 30 such projects are either open, under construction, or
planned from Fort Lauderdale to Key Biscayne.
Already, the concept has changed how South Florida builds luxury
hotels with developers turning to the real estate market instead of
banks to fund construction costs. By selling ownership of the rooms
in advance, developers secure more than enough money to build the
hotels without the risk of making loan payments in the rocky early
years of a hotel's debut.
Analysts note that only a handful of condo-hotel properties have
been open long enough to offer comparisons for potential buyers, and
there's no consensus on whether the units make good investments.
Tourism officials also worry that the move toward individual
ownership of hotel rooms could leave too few beds for tourists, as
well as put pressure on the number of hotel rooms available for
large conventions. Such conventions typically need thousands of
rooms reserved years in advance.
''If you own one of those units, I don't know when you're going to
use it,'' said David Kelsey, head of the South Beach Hotel and
Restaurant Association. ''You can't guarantee you will have the room
available for conventioneers.''
But nothing seems to be cooling developers' enthusiasm for
condo-hotels and their quick access to cash.
Last week, the owner of the Sonesta Beach Resort on Key Biscayne
announced it will raze the 294-room property to make way for a
condo-hotel complex, and Ian Schrager's ultra-hip Shore Club has
quietly begun compiling a waiting list for buying its 325 rooms.
Fort Lauderdale's tourism boosters also are salivating over a wave
of luxury hotels slated to open in that former low-budget paradise
for spring breakers -- projects financed as condo-hotels.
A BIG APPETITE
Then there is the Falor appetite for acquisitions. In May 2003 the
family -- David, the chairman; Robert, the president; and Chris,
director of renovations -- closed the deal on their first conversion
project: the Cheeca Lodge resort in Islamorada, home to George H. W.
Bush's annual bonefish tournament. From there they scooped up the
Mayfair House, a famed if faded hotel in Coconut Grove.
Then the Falors turned to South Beach, buying the Breakwater and
Edison, and then the $500-a-night Tides, once owned by record mogul
Chris Blackwell.
Next came the Royal Palm -- 417 rooms on the ocean, a major
convention-headquarters hotel and the fourth largest resort in Miami
Beach. Waiting for that deal to close, Falor signed a contract to
buy the Omni Colonnade, an upscale business hotel in downtown Coral
Gables.
The company is also converting a Chicago hotel and have two more
under contract, along with one in Los Angeles and Boston.
People familiar with the deals say the Falors scooped up the prized
South Florida properties by coming in early with strong offers and
promising quick closings.
''They're very aggressive,'' said Scott Podvin, a real estate lawyer
with Stearns Weaver in Miami who represented the Falor Cos. on the
Mayfair deal. ''That's part of their strategy: Let's beat others to
the market.''
Though the Falors have feuded with business associates in the past
[see below], their condo-hotel ventures seem to be generating a
mostly warm welcome.
And some industry leaders who had expressed concerns about
condo-hotel conversions say they're reassured by the Falors' pledge
to reserve rooms for conventions.
''Before I met with David and sat down with him, I was concerned,''
said Stuart Blumberg, president of the Greater Miami & The Beaches
Hotel Association. ''He understands the business. He's not just
someone coming in the front door, converting and let me take my
carpet bag and move on.''
RENTAL POOL
Developers dismiss critics' concerns about a potential shortage of
hotel rooms, saying most owners turn their units back to the hotel's
rental pool. And they note the condo-hotel model is creating rooms
when most banks won't fund hotels.
''To the extent it puts more hotels into the inventory, it's a good
thing,'' said William Talbert, president of the Greater Miami
Convention & Visitors Bureau.
By passing on debt, property taxes and other costs to unit owners,
condo-hotel developers open a property with an instant profit on the
real estate.
''You don't have to wait five years to sell your project,'' said
Francis Nardozza, chairman and chief executive of REH Capital
Partners, a Fort Lauderdale investment firm. ''Essentially, you're
selling it on Day One.''
In return, unit owners -- who can pay in the low $100,000s for small
hotel rooms or more than $1 million for an oceanfront suite -- get
free stays in upscale hotels, instead of the housecleaning and
shopping that often comes with a vacation home.
And when the owner leaves, the unit is offered for rent on a daily
basis without any hassles for the owner. Unlike time-share units,
which generally plunge in value with age, condo-hotel rooms offers
the prospect of appreciation, or at least recouping the original
purchase price.
Unit owners split operation costs with the hotel in exchange for a
share of the room's rental income, typically about 45 percent. But
with many hotels losing money their first few years in an always
competitive and seasonal market, condo-hotel units are unlikely to
be cash cows, the experts said.
''If I had to give someone advice -- and I probably shouldn't be
saying this -- I would say don't buy a condo-hotel unit as an
investment. Just don't do it,'' said Ricardo Dunin, who opened the
Mutiny in 1999 in Coconut Grove, the first South Florida condo-hotel
project since their scattered use as a tax-shelter died off in the
1980s.
BUY IT, USE IT
''The reason you buy a condo-hotel is for use,'' Dunin continued.
''And [when] you're not there, then it's being rented and maybe you
pay for your costs.''
Federal securities law bars developers from marketing condo-hotel
units as investments, but there's little question investors are
fueling many of the projects' pre-sales. ''Ninety-five percent of
the time [buyers are] really more interested in an investment than
in a vacation home,'' said Joel Greene, president of the Condo Hotel
Center brokerage in North Miami
If that's the case, then that pool could dry up if the first
generation of condo-hotel projects generate too little cash and too
low resale prices. But vacationers scooping up the units would be
another story.
''If that is, in fact, the end user, I don't think there's an end to
the demand,'' said Gregory Rumpel, the Jones Lang LaSalle Hotels
vice president who helped broker the Falors' Colonnade and Cheeca
deals.
Hotel markets in Latin America, Europe and Australia have been
building condo-hotel projects since at least the 1980s, but the
concept was mostly isolated to ski towns in the United States. Then
the Mutiny opened, signaling the start of a trend that spread
quickly through South Florida.
The last two years saw developers across the country tip-toe into
the concept. The Trump International Hotel and Tower in Chicago --
where Bill Rancic went to work after The Apprentice -- is a
condo-hotel property. Aventura-based Turnberry Associates launched
the first Las Vegas condo-hotel last January, and other developers
are following suit.
The Falor Cos. says it has $1.2 billion worth of property either
under contract or in its portfolio and has plans for more
acquisitions.
Admirers point to the company's experience running hotels. David
Falor used to head up sales at the old Americana hotel in Bal
Harbour and the Falor Cos. made most of its money buying and
repositioning hotels. ''You have to understand the hotel business to
understand the condo-hotel business,'' said Ezra Katz, chairman of
the Aztec Group hotel brokerage, which is working with the Falors.
JETTING TO DEALS
The Falors have assembled a set of investors to fund the
acquisitions, capped by a $45 million commitment from the
Miami-based Mitchell Cos. In addition to cash, Guy Mitchell brought
a Lear jet to the partnership, allowing him and Falor to crisscross
the country in pursuit of deals.
A company press release says the Falor Cos. has more than $400
million pledged from equity investors for future acquisitions, and
the company is scouring the country for markets where it can pioneer
the concept, too. ''We want to be the first into a market where
condo-hotels do not exist today,'' Robert Falor said. ''Because we
want to set the prices.''
June 19, 2004 -- If you're thinking of
joining Beyonce� Lenny Kravitz and all the other celebrities who
have recently bought Miami pads, here's an inside tip: South Beach
is so, like, totally over.
In-the-know locals are now setting their sights on a rapidly
metamorphosing skyline: downtown Miami, which is starting to look
less like Florida, and more like Manhattan.
A massive wave of development has seized the city, from the core of
downtown (best known, until recently, for low-budget luggage shops),
and extending south to Brickell Avenue (Miami's version of Wall
Street), west along the Miami River and north to a burgeoning artsy
scene.
Joining neighborhood vanguards like the Four Seasons (a 70-story
luxury hotel and condo building, the tallest residential building
south of Manhattan) and NeoLofts (Miami's first "New York-style"
loft building) are a variety of residences. Many are massive
mixed-used projects, like the six-acre Metropolitan Miami, and
Everglades on the Bay, a two-tower condominium.
"Miami is an untapped metropolis, and it's been underutilized -
until now," says Mark Zilbert with EWM Realtors.
Suzy Buckley, an editor at Ocean Drive magazine, is one of many
young professionals taking a chance on downtown Miami. She recently
bought, based on plans, a two-bedroom condo at One Miami, a
two-tower waterfront development that is nearly sold out.
Currently, Buckley lives, works and plays in South Beach.
"Everything I do is here," she says, admitting to being slightly
nervous about moving. "I'm thinking about everything that is
springing up downtown, so maybe it'll be the same thing downtown as
it is in South Beach.
"I got more for my money downtown," Buckley, 28, explains.
"Basically, I could have afforded an amazing one-bedroom in South
Beach, or a brand-new two-bedroom in downtown."
In South Beach, oceanfront properties average $1,000 per square
foot, while bayfront condos are going for $600 per square feet. By
contrast, pre-construction prices for waterfront properties downtown
average between $350 and $450 a square foot - though "prices are
accelerating rapidly," cautions Zilbert
Residents speak of big plans to turn their sleepy city center into a
24-hour community. Downtown is zoned for all-day, all-night liquor
licenses. Further uptown, construction on the Performing Arts Center
of Greater Miami is nearly complete.
"Within the decade, downtown Miami will have the attraction and
allure of Las Vegas," predicts Zilbert, somewhat optimistically.
For today, a bird's-eye view garners nothing but construction for
miles.
"When we first broke ground four years ago, there wasn't much
around," says Richard Baumert, vice president of Four Seasons
developer Millennium Partners. "Now, the area's exploded."
"Anybody who saw South Beach in the '80s can see what downtown Miami
will become," says Lissette Calderon, who was behind NeoLofts and is
now developing the 100-unit NeoVertika loft building on the river.
"South Beach progressed from a sleepy older-immigrant neighborhood
to the lively community it is today. Downtown is the next frontier -
it's the heart of the city."
Hedge fund manager Paul Beloff is one of the locals - OK, like many
Floridians, he's a New York City transplant - kick-starting that
heart.
"I don't necessarily want to be where the party's at," says Beloff,
41, who recently moved into the Four Seasons and is an investor in
the Pawn Shop, a lounge opening in the performing arts district this
summer. "Here, it's nice and classy and upscale. In South Beach,
it's not so classy - and it's touristy.
"In Miami, you can still buy property and view, and you don't have
to be a millionaire to afford it. "
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