Condo-hotels come to smaller cities

Posted on Sat, Aug. 19, 2006
By VINNEE TONG
The Associated Press

CHANGING SKYLINES
When urban dwellers think of condo-hotels, they usually imagine sky-high city apartments that come with daily maid service, mints on pillows and the option to order chilled champagne for delivery at any hour.

In New York perhaps, their fantasy would not be far from reality.

More often, though, condo-hotels are proliferating into midsize and smaller cities across the nation and, in some cases, transforming the places where they’re being built.

Condo-hotel projects can be found in different stages of development in cities such as Myrtle Beach; Berkeley, Calif.; Provo, Utah; Pittsburgh and Little Rock, Ark. And they’ve been proposed for towns as varied as Yankeetown, Fla.; Asheville, N.C.; and West Wendover, Nev.

The founder of the Phoenix-based hotel chain Inn Suites decided about a year ago that condo-hotels might work for his 11 properties. Since then, chief executive James Wirth has started converting the company’s Arizona properties in Yuma, Tempe, Tucson, Flagstaff and Phoenix, nearly half of the company’s total portfolio. The conversions should be completed in six to 12 months.

More condo-hotels are being built because they simply make financial sense, experts say:

• Hotel developers can spread risk to condo owners and earn income from condo sales at the time projects are finished.

• In some cases, developers can break even upon completion.
Further, condo-hotels by nature are better suited to surviving than hotels on its own, experts say.

“Condo-hotels earn like commercial hotels and appreciate like residential condominiums,” said Dante Alexander, the founder of the National Association of Condo Hotel Owners.

Condo buyers investing in condo-hotels buy the unit and allow the hotel management to rent it out when they’re not using it, sharing the revenue. This arrangement makes the most sense in cities that get more traffic from travelers.

In certain smaller cities, developers instead build hotels with residential units.
Projects of both types are in development in 31 states throughout the United States, said Jan Freitag of Smith Travel Research. This almost certainly is a rise, although industry watchers say it’s difficult to estimate by how much, since little historical data exists.

“That’s been a concept that’s worked in places like New York, San Francisco, Chicago for a long time, and that’s now filtered into other areas,” said Chris Meyer, director of the Milstein Center for Real Estate at Columbia University.

While resort and vacation destinations are getting their fair share of condo-hotels, developers proposing them for smaller towns meet greater resistance.

In McCall, Idaho, a group called Save Our Skyline opposes a $25 million plan to build a 50-foot-tall hotel with condos and retail space on the shore of nearby Payette Lake.

“My guess is that this is going to turn this town upside down,” a member of the group, Tuck Miller, told the Idaho Statesman.

The developer of a hotel with residences in Idaho Falls, Idaho, proposes a 13-story, 800-unit project that would be the tallest structure around, beating out a water tower.

And in Raleigh, N.C., a local developer plans to build two hotels with condos, 21 stories and 25 stories in height, at opposing ends of its downtown. A June 20 headline in the News & Observer of Raleigh read, “Builders want to lift the skyline,” and the story notes that the projects would change the face of the downtown area.

Proponents of smart growth — characterized by greater density and development that more closely integrates work and home life — say the popularity of condo-hotels validates the idea that more Americans want an urban lifestyle.

“We’re at a time right now of a great deal of change. ... I would say the traditional urban subdivision paradigm is breaking down,” said Adam Gordon, editor in chief of the magazine The Next American City. “We have much more complicated patterns of where people are moving.”
Condo-hotels are part of that changing landscape, and they are multiplying because they make market sense, said John Norquist, president of the Congress for New Urbanism and a smart-growth advocate.

“We’re kind of moving from an era where cities were building huge convention centers, and now they’re actually doing something that the market wants, blended with a hotel,” Norquist said.

“These are all things that are healthy. It shows common sense. Cities and consumers and developers are all getting something without having to subsidize each other.”

ABOUT CONDO-HOTELS

• Condo-hotel rooms make up 19.5 percent of the hotel rooms under development in the United States, according to Smith Travel Research.

• The top markets are Las Vegas Condo-Hotels, representing nearly one-third; followed by Miami/Fort Lauderdale; Orlando, Florida Condo-Hotels.; New York City; Chicago; Tampa/St. Petersburg, Fla.; Myrtle Beach Condo-Hotels; Boston; and San Diego.

NOTE: Data as of March 2006

Investing in Preconstruction Real Estate
Myrtle Beach Real Estate
Myrtle Beach Condos

Myrtle Beach Real Estate

Myrtle Beach Condos and Investment Real Estate

I guess everyone is aware that the big real estate investing boom of last summer has subsided somewhat.

Last year reminded me of a twice a year happening we have in Myrtle Beach, when an unbelievably large school of fish makes a migration through here. In March and October, a small and "tasty" fish called "spots" come through the entire area in HUGE schools, close to the shore, and right under and around the piers. Pier fishermen (and women) bring huge garbage cans, coolers, barrels, and anything they can find to put ice in, and literally throw out a line and bring in 3 and 4 fish at a time, often without even baiting the hook. I did it myself one year, and while it's cool to catch 200 fish in 30 minutes, there was no sport or challenge to it, and then you're stuck cleaning all those fish!

That's the way it was with condos and any other kind of resort real estate last summer.

Myrtle Beach condos were so easy to sell that there weren't enough to go around for all the people looking for investment real estate. All you needed to do was talk about a new resort and there were buyers begging for the product.

Of course this was going on in Florida and many other areas, too. Developers went crazy everywhere, and the market became saturated. As the months passed, interest rates climbed with mortgage companies, all the investment gurus kept predicting doom and gloom in the press, and eventually it became somewhat of a self-fulfilled prophecy. Sales slowed, and investors got scared and backed off. The ones that got in on the condo boom in the beginning made gigantic profits, and the ones that waited either lost out, or may now be facing a choice of closing on the preconstruction or losing their deposits.

By no means has there been a real estate bubble or crash. I think every bit of this has been caused by the doom predicters. And the agents and people who know what they are talking about are all saying that this is only a slow-down, and another wave will hit in about a year and a half from now. My only other concern is how high condo insurance may end up going.

The good news is that now it's more of a "BUYER'S MARKET". For those who don't choose to believe all the pessimists and invest in condos and resort property now, they will get even bigger discounts and perks, and when it picks up again, they will be in the same boat with the ones who bought in the beginning of the other boom. Real Estate investing is not for the worriers or the wimps...I think you have to have the nerve to take a chance and get in early to reap the profits.
A guy who is near and dear to me never stops buying. It would terrify me to borrow and spend right and left on every kind of real estate in Myrtle Beach, but he is building so much wealth that I doubt even HE knows what he has. And in about 10 years he will be so rich that we will all be shaking our heads in disbelief. If you've got the money, the credit, the right intuition, and the nerve to commit everything you have, you'll come out on top. I see him doing this every day, and my admiration for him knows no end.

Myrtle Beach is still underpriced compared to Florida and the other hot vacation spots. The developers are offering incentives right and left. Anyone who is looking to invest in real estate and can hold their investment for a year or two will be smiling then.

Here's a recent article about the local market and some of the discounts and perks the developers are offering. If you are thinking about investing at all, you should read it and think hard about taking the plunge before it starts back hot and heavy and prices jump again...

Home builders offering incentives on S.C. coast

Special deals aim to pick up sales among wary buyers in shaky market
By JENNY BURNS
jeburns@thesunnews.com

MYRTLE BEACH — Big builders, taking cues from the auto industry to sell their oversupply of homes, are offering big incentives along the S.C. coast.

Buyers can get 4.25 percent financing, no payments until 2007 or free homeowners association fees for a year.

The deals are aimed at making cautious buyers during this real estate slowdown take the plunge and buy.

“(National builders) are seeing sales falling in general, seeing cancellation rates pick up, and they’re using the incentives to help drive sales and use it to sell inventory that they didn’t plan on having,” said Todd Vencil, analyst for BB&T Capital Markets, who covers eight publicly traded home builders.

For consumers, the payoff is in lower monthly payments and less upfront cash to get into a new home.

While incentives are normal, Vencil said this summer’s incentives go beyond the typical appliance upgrade and free closing.

“They’ve clearly picked up,” he said.

One example is Centex Homes, the Grand Strand’s largest builder. The company is offering 4.25 percent financing with an adjustable rate mortgage. On a $150,000 home, that would make monthly payments about $738 before insurance and taxes are figured in.

That rate is only on spec homes that close by Oct. 31 in most Centex neighborhoods, said Ken Balogh, Myrtle Beach division president.

For a 30-year fixed mortgage, that rate jumps to 6.5 percent.

Balogh said Centex wants to take rates down to last year’s level to help buyers fight rising rates.
The builder is seeing an uptick in cancellations compared with last year, especially in condos, he said.

Builders also are looking at ways to ease the pain of skyrocketing insurance rates along the Grand Strand.

For instance, Centex is paying homeowners association fees between $3,000 and $9,000 in most of its condo and town home projects.

Some Strand condo complexes have seen double and triple increases in their fees because of insurance hikes.

“We can’t fix the insurance challenges but we can help our customers to overcome a year or two of that increase,” Balogh said.

Builders aren’t saying how long they’ll be touting incentives, but analysts expect the enticements to stick around a while.

myrtle beach real estate

Jenny Burns is a reporter for The (Myrtle Beach) Sun News, a McClatchy newspaper.