Hotel Management for the Condo Hotel

By Nelson Migdal Shareholder & Co-Chair Hospitality Practice, Greenberg Traurig LLP | October 28, 2008

Many of the new condo hotel projects that you have been hearing and reading about are nearing completion and preparing to open for business. The focus of our attention and analysis must now shift from the philosophical foundation of the condo hotel model to the more pressing concern of how to operate the asset in a manner that is consistent with the hopes and expectations of the parties.

The parties interested in this discussion are generally the owner of the hotel unit (the "Hotel Owner"). The hotel unit is the element of the building that is not owned by individual condominium unit owners. This is described and defined in the Declaration of Condominium, and might include things like the lobby, front desk, elevators, facade, roof, pool and health club, and even a "core hotel". At this stage in the life cycle of the majority of condo hotel projects, the Hotel Owner will be the developer or sponsor of the project. The next interested party is the individual condominium unit owner (the "Unit Owner"). These are the end users like you and me, and certainly some investors owning more than one condominium unit within the condo hotel. The expectation is that the universe of Unit Owners will be large and the expectations, demands, requirements and desires they bring to the operation and management of the project will vary by individual. To a certain extent, each Unit Owner is the developer's partner in the project. Next there is the manager or operator of the Hotel Unit, and in some situations, of the association of condominium unit owners (the "Operator"). There are a variety of structures for the contractual relationship by and among the Hotel Owner, Operator and Unit Owners.

Finally, and hopefully to a lesser extent, there may be a lender that financed the project and that remains present because the Hotel Unit continues to be owned by the Hotel Owner, and the Hotel Unit secures the Hotel Owner's loan, as the borrower, from the lender. The goal is to deal with the lender at the time of the closing of the loan, pay down or pay off the debt through the sale of individual condominium units, and have a positive cash flow from the project so there is no active involvement by the lender.

Heads in Beds

Some Unit Owners want their condominium unit to be their second or vacation home. A small minority of these Unit Owners will not want to be part of the rental program and will never be part of the hotel room inventory available to the Operator. The majority of Unit Owners are expected, and offered benefits and inducements to make the decision easier, to enter into a Unit Management Agreement ("UMA") and place the condominium into a rental program operated by the Operator. Even if the Unit Owner will use the condominium unit as permitted under the UMA, and this may include limitations as to the number of days of use each year, and certain "black-out" dates, the Unit Owner will want the unit to be rented as part of hotel room inventory to produce income for the Unit Owner. To make matters more interesting, there are plenty of condo hotel projects in which not all condominium units are owned by Unit Owners.

These projects have a hotel component that is owned by the Hotel Owner. This strategy provides the Operator with a "core hotel" and a minimum number of hotel rooms in inventory that are not subject to the variables of managing the condominium units owned by Unit Owners.

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Coming up in February 2018...

Social Media: Engagement is Key

There are currently 2.3 billion active users of social media networks and savvy hotel operators have incorporated social media into their marketing mix. There are a few Goliath channels on which one must have a presence (Facebook & Twitter) but there are also several newer upstart channels (Instagram, Snapchat &WeChat, for example) that merit consideration. With its 1.86 billion users, Facebook is a dominant platform where operators can drive brand awareness, facilitate bookings, offer incentives and collect sought-after reviews. Twitter's 284 million users generate 500 million tweets per day, and operators can use its platform for lead generation, building loyalty, and guest interaction. Instagram was originally a small photo-sharing site but it has blown up into a massive photo and video channel. The site can be used to post photos of the hotel property, as well as creating Instagram Stories - personal videos that disappear from the channel after 24 hours. In this regard, Instagram and Snapchat are now in direct competition. WeChat is a Chinese company whose aim is to be the App for Everything - instant messaging, social media, shopping and payment services - all in a single platform. In addition to these channels, blogging continues to be a popular method to establish leadership, enhance reputations, and engage with customers in a direct and personal way. The key to effective use of all social media is to find out where your customers are and then, to the fullest extent possible, engage with them on a personal level. This engagement is what creates a personal connection and sustains brand loyalty. The February Hotel Business Review will explore these issues and examine how some hotels are successfully integrating social media into their operations.