Proceed with Caution: If Condo Hotel Market Cools, Litigation Could Heat Up

By William A. Brewer III Managing Partner, Bickel & Brewer | October 28, 2008

Beyond the Big Apple

In August 2004, Elad Properties Ad Group Ltd. bought the Plaza Hotel for $675 million, a staggering $838,000 per room. Elad, a U.S.-based subsidiary of an Israeli company, is in the business of luxury condominium development, so it was no surprise that the company would plan to convert the Plaza.

In fact, condo hotels have attracted so much attention that the New York City Council recently introduced a bill to prevent hotel owners from converting more than 20 percent of a given hotel to condominium apartments. Meanwhile, extensive condo hotel development is happening all across the country. There are many companies providing hotel condo space in major markets throughout the United States. In fact, it was recently reported that more than 11 percent of all current hotel projects are condo hotels. At the end of first quarter 2005, there were more than 100 condo hotels moving through the industry's development pipeline.

What's behind this hot new market? For condo hotel developers, the answer is simple - a quick return on their investment. Capital is gained from the sale of condominium units, which often sell at prices that command attractive premiums when compared to traditional condominium residences. Due to this structure, these projects are advantageous in that they limit the amount of debt developers typically hold. For unit buyers, condo hotels can represent attractive real estate investments with attendant benefits that come with ownership. Demand is driven by the fact that most condo hotel properties tend to be upscale, such as the Fontainebleau Hotel in Miami Beach, Florida and the MGM Mirage in Las Vegas.

The Good

Of course, the key to success of a condo hotel project is the hotel component. The hotel operation must be efficient, attractive and profitable for the concept to work. The good news for many major developers is that this business model is relatively easy to identify, based on past experience and a good understanding of the local market.

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Coming up in March 2019...

Human Resources: An Era of Transition

Traditionally, the human resource department administers five key areas within a hotel operation - compliance, compensation and benefits, organizational dynamics, selection and retention, and training and development. However, HR professionals are also presently involved in culture-building activities, as well as implementing new employee on-boarding practices and engagement initiatives. As a result, HR professionals have been elevated to senior leadership status, creating value and profit within their organization. Still, they continue to face some intractable issues, including a shrinking talent pool and the need to recruit top-notch employees who are empowered to provide outstanding customer service. In order to attract top-tier talent, one option is to take advantage of recruitment opportunities offered through colleges and universities, especially if they have a hospitality major. This pool of prospective employees is likely to be better educated and more enthusiastic than walk-in hires. Also, once hired, there could be additional training and development opportunities that stem from an association with a college or university. Continuing education courses, business conferences, seminars and online instruction - all can be a valuable source of employee development opportunities. In addition to meeting recruitment demands in the present, HR professionals must also be forward-thinking, anticipating the skills that will be needed in the future to meet guest expectations. One such skill that is becoming increasingly valued is “resilience”, the ability to “go with the flow” and not become overwhelmed by the disruptive influences  of change and reinvention. In an era of transition—new technologies, expanding markets, consolidation of brands and businesses, and modifications in people's values and lifestyles - the capacity to remain flexible, nimble and resilient is a valuable skill to possess. The March Hotel Business Review will examine some of the strategies that HR professionals are employing to ensure that their hotel operations continue to thrive.