President and CEO, National Association of Condo Hotel Owners

Darrick Meneken

As published in Scotsman Guide's Commercial Edition, July 2008.

Condominium-hotel hybrids include units that double as hotel rooms when their owners leave -- a setup that N.A.C.H.O. President and CEO Dante Alexander calls "the most advantaged model for ownership" of secondary real estate. Although many of the condo-hotel sector's hopes lie in the whims of the growing baby boomer population, condo-hotel developers are watching today's tighter financing requirements closely. Alexander tells us more about working with them.

What recent changes has the condo-hotel market seen? One of the biggest risks for condo-hotels was the nature by which they were developed -- solely as an investment for consumers. That fervor put the whole segment at risk. It's refreshing to see that today's projects need to be feasible. Short-term and long-term commercial sustainability are now mandates.

Before, if developers had a site and could convince parties that they could sell their units at a high-enough price to generate a profit, that's all the commercial interest there was in getting a project financed.

What are the benefits of developing condo-hotels? A condo-hotel will have greater velocity, meaning more demand, and will sell for at least a 15-percent premium above a straight condominium. Further, the capitalization rates on hotels are still quite good.

What challenges face commercial mortgage brokers working on these projects today? The only thing that's unique today -- and I'm not counting the three-year period where you literally could get as much as 85-percent financing commercially -- is that it's expected that developers bring about 40-percent equity or secondary financing.

Ten years ago, a commercial development would have been able to qualify for about 70-percent loan-to-cost on its primary tranche. Today, it's arguable getting it to 60 [percent].

The other things that [lenders are looking at are the] qualifications of the developers and the development team.

Are there any niches inside the condo-hotel market that mortgage brokers should know about? Just about anywhere you have limited supply and high periods of demand [such as annual events that draw large crowds] could be a good location.

N.A.C.H.O. has a seal of approval. What does the evaluation entail? We do all the feasibility [assessments] and underwriting. We also look at it specifically as a condo-hotel. It's cheaper than conventional feasibility, and it will make developers realize the balanced equation (including homeowners' association dues and tenant mix) that they have to produce to deliver a sustainable condo-hotel.

Darrick Meneken is an associate editor at Scotsman Guide. Reach him at (800) 297-6061 or darrick@scotsmanguide.com.