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10/01/2006
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| [Real Estate] |
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| The National Association of Condo-Hotel Owners frees up key data. |
| text by: |
Lark Ellen Gould |
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A one-bedroom condo-hotel unit
at the Four Seasons in Miami, purchased for $829,000 when it was built in
2003, currently rents through the hotel from $300 to $1,075 per night. Of
the nightly rate, the owner receives approximately 80 percent, the hotel the
remaining 20 percent. While the extra income may be a perk for own-ers who would
otherwise see their vacation property earning no return and lying vacant for
most months of the year, other buyers, who have purchased based on the
presumption that they can harvest positive cash flow with the unit’s yearly
rental income, may be disappointed.
NACHO can help potential buyers of luxury
condo-hotel units, such as those in the Miami Four Seasons, realistically
plan their rental income potential. Top Photograph by Troy Campbell. (Click images to enlarge)
"What’s complicated about buying a condo-hotel unit is that 95
percent of them are developed as fee simple transactions, which means
developers are not allowed to disclose any benefits about the rental program," explains Dante Alexander, president and CEO of the National Association of Condo-Hotel Owners (NACHO). If a developer wanted to express the benefits of the
rental program, he would have to represent the unit as a security, meaning it
would be necessary to meet the requirements of the Securities Exchange
Commission (SEC) and he would only be able to sell it through registered
brokers—adding a considerable cost. "It makes things difficult for buyers,"
explains Alexander. "Buying a second home is buying a luxury and a lifestyle,
but there’s no reason why they shouldn’t be able to make money on it, too—only
most of the time, buyers can’t get a lot of the final information they need
during the presale. That’s where we come in."
NACHO operates in two ways. Using its in-house analysts, it
performs an indepth commercial feasibility study for developers that
in-cludes research on the competitive sustainability of the commercial
hotel, the effectiveness of the homeowners association and a breakdown of the
unit economics. The process takes approximately two weeks, after which the
information is posted on the association’s website and made available to
prospective buyers as well as the developer. The cost to the developer is $50
per unit. Secondly, any buyer interested in obtaining information about his or
her potential net expense and the projected economic stability of a given property can request a consumer study. This less-involved analysis usually takes
a few days and costs $50.
In the first two months since its founding this past May, the
company has already evaluated three dozen properties and attracted more than
5,000 members (anyone can become a member and access information on the website
for the $50 fee). "One of the most frequent questions we’re asked is from
developers who want to know where they can go to get a project financed. Luckily
for them, we have plenty of members who specialize in just that," says
Alexander. "Not only are we the best single source of unbiased condo-hotel
information, but we’re a great network too."
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