Condo-hotels were all the rage in the mid-2000s, offering developers a path to steady revenue and permanent profit, or so it seemed at the height of the boom. The scramble to build these hybrid properties with the best of both worlds — stable unit ownership to help cover maintenance costs and steady tourism traffic to maximize revenue potential — now lingers as evidence of the region’s overheating.
The trend was short-lived, but a down market may resurrect it in modified form. Jean Francois Mourier, CEO and founder of revPar Guru, a hotel software company in Miami Beach, sees an inversion afoot: Developers are exploring the possibilities of transforming condo properties in a market where there are fewer buyers than travelers looking for a spacious hotel room complete with separate bedrooms, bathrooms and kitchens. His company takes its name from the industry abbreviation of revenue per available room, a critical measurement of hotel performance.
The Real Deal sat down with Mourier to discuss the possible resurgence of condo hotels and the singular features of the Miami market.
What caused the rapid growth of condo hotels and how is that property category evolving?
The housing boom. Everything was overvalued and many developers gambled on the condo hotel trend. Now, we’re seeing some condos transform themselves into hotels. We are currently working with the Buckley Towers. We’re also talking with Il Lugano in Fort Lauderdale, which also went from a condo to a condo-hotel. There are different models. Some go from condos and transform totally into hotels. Others are still condo hotels with many different owners. Some buildings have condos with multiple owners, like a time share.
What’s driving that trend?
In the case of Il Lugano, they couldn’t sell the condos because the housing market collapsed. They decided to transform it back into a hotel. The rev par of a five-star hotel will make you about $100,000 per room a year in terms of cash flow. Condo owners facing bankruptcy can rent out the condo units as hotel rooms to pay the monthly mortgage payments where they otherwise could not. They can survive a few years like that, and in some cases make a profit, while they wait for the market to recover. Then they can sell them as condos once again.
What are the challenges of making that type of business model transition?
The owners have to get a permit at the city. It’s not always possible. In some cases, the city will say no. But Downtown Miami is very flexible. Of course, there is the logistics of taking care of every single room, cleaning up, furnishing the units, etc. But that’s not a difficult transition.
How can condo owners decide if this is the best route for their property?
For some owners, it may be the only solution to generate cash flow and also maintain the building. Some owners are scared because they don’t know how to do it, but when the only other option is Chapter 11 there’s really no choice other than booking the units as hotels. But the rental market is not good, either. A hotel makes more sense from a financial perspective of revenue generation.
How does Miami’s market differ from other markets? What does this mean for the hospitality industry’s recovery?
The Miami market is very strong. It’s still a large magnet and has the capacity for the growth of tourism. The only other strong market we see in the U.S. right now is New York. California is a disaster and Orlando is really hurting. Miami is still doing fairly well and [is] very resistant. People from all over the world come here to enjoy the sun and activities. This market is perfect for the condo hotel.