Own your hotel room

[OwnerInvest]

Hi

I have just joined the forum and hope I can bring some good information to the board

Nice to meet everyone and look forward to speaking to you all

David Rowan (The Times) wrote an interesting article and thought I would share with you

Love your hotel room? Now you can own it. As the hotel industry looks for new ways to make money, the idea of selling off individual rooms is suddenly hot. Your check-out bill might set you back a few hundred thousand pounds, but you earn cash back each time the room is rented out.

And, of course, you get a five-star holiday-home as part of the deal.

They are known as "condo hotels", or "condotels", and they are springing up from Exeter to the Everglades. Developers love the concept, as it provides money up-front from investors tempted by potential capital as well as rental returns. There are no guarantees that they will necessarily make their money back, but that hasn't stopped them signing up by the hundred. In Florida alone, demand is reported to be strong enough to support around 30 current projects from Miami to Key Biscayne.

Here's how it works. Once you have bought your room, you typically join an owner's club giving you access to all the hotel's facilities, from fitness suite to maid service. You can of course stay there yourself, but whenever your room is unoccupied the hotel will make it available in its general rental pool. When a paying guest checks out, the revenue is split roughly equally between you and the hotel management. The front desk takes care of everything from laundering sheets to updating furnishings.

At Intrawest's Mont Tremblant resort in eastern Canada, £270,000 will buy a two-bedroom suite at the elegant Ermitage du Lac hotel that will rent out for £330 a night. "You choose when you stay, which on average amounts to about 14 nights a year," explains Michel Naud, a local real-estate broker. "The revenue from the rest of the year will cover your expenses and a good proportion of your mortgage payment." The 69-room hotel is managed by a specialist company, Boutique Hotels, which takes 50 per cent of the revenue. Whenever you want to use your room, you simply call in advance.

The catch, it seems, lies in the high "maintenance" fees, which for the Ermitage du Lac suite add up to almost £8,000 a year. That would comfortably buy you 14 nights in some of the world's most luxurious hotels. Still, the developers are betting on capital appreciation to lure prospective buyers. When the British developer GuestInvest offered 20 fairly small rooms in its Notting Hill hotel two years ago, it claims to have sold out within eight weeks at prices starting at £140,000. The company is now marketing 153 further rooms in hotels in Cheltenham, Exeter and Manchester, all on 99-year leases.

Does it stack up as an investment? GuestInvest likes to quote rental returns "in excess of six per cent", but some in the industry worry that the glamour of being an amateur hotelier may blind owners to the considerable risks. What if a hotel proves to be so badly run that owners' income suffers? No problem, says Michel Naud in Tremblant: the residents' association can simply re-award the management contract. But further questions remain. What if re-sale values prove less optimistic than the forecasts? What if the monthly maintenance bills shoot up? What if condo hotels prove to be the next time-share bubble?

For now, that's not too much of a concern for Donald Trump, currently building 200 condo hotel units into his latest Chicago tower. Just don't expect him to throw in the mini-bar!!

[Investy]

Its says above investors can 'simply' find new management if the hotel doesn't perform.

That one word there, 'simply' is about as misplaced as a one legged bloke in an @rse kicking contest.

Lets imagine investors dottot all around the world trying to get a new managment team in place. Now what will the new team want in terms of thier own slice of the pie?? Mmmmmmm

What if the company running the hotel goes bust - what will creditors want from room owners?

I cant see capital growth being too good on these either.

Running a sucesful hotel is bloody hard for full time dedicated experienced hotelliers that dont have room investors on the pay roll to.


So many lose ends here, defo not for me.
Far better opportunities out there.

[OwnerInvest]

The word "simply" is about as accurate as you can get! Let's see, Trump, Marriot, Hilton, all companies who endorse and embrace the condo-hotel concept, or perhaps they don't know what the're talking about either! Like real estate, it's all about location and demand, thats why you should invest in known established locations like the Costa Del Sol, it's been there for 30 odd years and it'll still be there in the next 30. Rising fuel costs will make european destinations even more popular as long haul prices itself out of the market.

If the company running the hotel goes bust, the creditors would have no claim against the freehold owners, if they did, no one would ever let business premises or office space out, or is that too difficult to understand. Mmmmmm

You're investing for a return from rental, capital appreciation is a nice bonus but is not normally included as part of any projections. If you want to dispose of your "share" in the business, then your price would be based on the anticipated returns and the ability to show a proven track record. Room prices WILL increase, it's called inflation and like capital appreciation, it's inevitable.

Too much negativity for me here and based on what? Far better opportunities out there, like pension funds or stocks and shares, oh, wait a minute!

[jessicatam]

I'd love to know how the people who first invested in GuestInvest rooms are doing now. I see their advertorials in in-flight magazines all the time, but I'm not convinced. I'm sure that there are great opportunities out there, but any company that markets by highlighting the 'glamour' of the investment doesn't strike me as the most reputable?

[odond]

I al always a bit worried about the resale in these apart hotels or hotel rooms investments. Does anyone know if the capital appreciation in these schemes is generally the same as with a classic buy?

Deirdre
French Property Ireland

[OwnerInvest]

To answer your question directly, hotel rooms are still real estate investments. And although companies will package up properties differently to capture the attention of investors, banks will take a hard line, especially now.
When we start talking to banks about arranging finance for any new hotel room product we market they look at it with cold eyes: "In this market at this time in this area its worth X per M2 and we will finance X% based on these findings". So in this sense its true capital appreciation will be very similar to traditional buy to let properties or in fact any other kind of property for sale.
However, the value of a hotel room investment is only partly based on its capital appreciation (And obviously even this is only really worth anything if you're selling and can find a buyer). The old saying that its only worth as much as the next person is prepared to pay has never been more true than right now. With hotel rooms you are investing in tourism and occupancy as much as bricks and mortar so its important that if you do invest in hotel rooms to make sure that the location attracts substantial visitors who need hotel rooms, preferably all year round. If your hotel room is generating 8 - 15% ROI after paying the mortgage you can be sure that you wont have any shortage of investors keen to take it off your hands.
To cut to the chase, the value of your hotel room investment is based on the money it generates. Surely this is what drives demand for any kind of investment product?
There are also some very nice bonuses that go with your hotel room such as the fact that you don't have to maintain it or worry about filling it and you get free personal use. In many cases you also get the freehold which means at some point you can move into it should you choose.
I read recently that 1 in 5 buy to let investors in the UK are now in negative equity. Capital appreciation is not something that can be taken for granted anymore so why rely on this one factor to get a decent return?

[Lysos]

GuestInvest has gone bust.

[OwnerInvest]

Guest Invest took on too much; they wanted to act as the hotelier, the developer and the marketing agent. Jacks of all trades are rarely good at everything they do.

[Lysos]

The thread in 'Bulgaria Property' on "Barcelo Royal Beach" gives some first hand accounts of possible problems with buying hotel rooms.

[odond]

Originally Posted by OwnerInvest

Guest Invest took on too much; they wanted to act as the hotelier, the developer and the marketing agent. Jacks of all trades are rarely good at everything they do.

Hi, I recently met with a promoter in France who insisted that the fact that the company could do everything in-house meant that the deal was a good one, company could not go out of business and and so would have to pay rental etc? Do you know anything about this?

Dee
The leading French property advisors in Ireland - French Property Ireland