Repairing a Broken Condo Hotel or Resort
Aligning Management's Interests with Those of Condominium Owners
By Larry Spelts Director of Asset Management, Charlestowne Hotels | September 16, 2012
Several times each month I receive a telephone call or an email from an owner of a condo at a condominium hotel or resort (i.e. a condotel) asking for help in getting rid of the current rental management company at their condotel. Although the calls come in from locations all over the United States (in July, as I write this, I have received calls from owners of condos in Lake Geneva, Wisconsin, Myrtle Beach, SC, and Miami, Florida), the reasons for the owners' discontent have been consistent: rental revenues below expectation; average rates below what the owners believe neighboring properties are getting; unsophisticated marketing programs or no program at all; poor unit maintenance and housekeeping; and unprofessionally managed operations that result in unhappy guests who write scathing reviews on lodging websites further damaging the income earning ability of the unit owners.
In January of 2011 one of these calls was received by Charlestowne Hotels, the hospitality and property management firm where I work, from one such owner and resulted in a change of management at the unhappy owner's condotel fourteen months later in March, 2012. Compared to working out a transition of management for a non-condo hotel or resort, that seems like a long time from first contact to implementation, and it is, but unfortunately, it is not unusual in the condotel segment of lodging to take over a year to unwind the current rental management. There can be a myriad of variables to deal with such as HOA board approval, legal notices to terminate based upon defaults, negotiating new master rental agreements and individual unit rental agreements, leasing of the commercial space in the property to operate a lobby and fronts desk, and wrangling with online travel agents to get control of the property's listings.
Through the process of helping the condotel owners, we had the opportunity to speak with many others at the condotel, and we were repeatedly told stories of neglectful management of their units, inaccurate monthly statements, late payment of rental proceeds, and unaccounted reserves for maintenance that the management was supposed to be holding in trust. There were even some reports of malicious acts of retaliation in the form of pillaged condos and sabotaged HVAC and plumbing by the onsite rental management company against condo owners who terminated their management agreement.
As we became familiar with the onsite rental management company's operation of the 90 condo units under their management, it was clear to us that there were no qualified hospitality professionals involved in the operation. The quality of the supervisory staff and the front line personnel was so low that it was disturbing to those of us accustomed to quality hospitality operations. During our due diligence process to understand the needs of the property, we discovered that the property had not had a general manager for over a year due to the management company's unwillingness or inability to provide a customary salary and benefits. The management company was also delinquent in remittance of occupancy fees and sales tax to the local authorities which in most states becomes the exclusive liability of the unit owner and an encumbrance on the condo should the owner wish to sell it. Not surprisingly, the guest experience had been very poor and the condotel ranked very poorly on TripAdvisor™ and other third party travel websites.
Further complicating the challenge of changing rental management companies, many condotels have more than one rental management company. In the case of this particular condotel, there were three different rental management companies marketing rentals at the condotel. This was creating a very confusing situation online where many consumers saw multiple listings on the same websites for units at the condotel. One was the "official" onsite rental management company that operated a fully staffed front desk and lobby within the confines of the condotel. The onsite company was evicted through legal action taken by the owners of the commercial space where the lobby was located, and the HOA Board approved legal counsel to advise each individual unit owner on the legal grounds for terminating their respective rental agreements based on various defaults by the former onsite rental company.
By demonstrating positive and decisive change as we assumed the onsite rental operations, we quickly saw many owners who were with the other, offsite management companies terminate their agreements and sign on with us. The most compelling positive change that came with new management was a new concept for the structure of the management-owner relationship that was nothing less than a strategic paradigm shift for the condotel business model.
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