Condo/Hotel Appraisal

[Don Clark]

Residential condominium

Chris,

They are "Residential Condominium" as defined by the Real Estate Assessor, under the type of zoning that allows for this type of condominium, and all other sources of data. The commercial operations owned by the GP have nothing to do with the individual condo units as those condo owners do notb have any interest either real or personal in the commercial operations of the hotel. Your market may be different but that's the way it is in this market.

 

[Chris Colston]

Commerical disguised as residential

Your market may be different but that's the way it is in this market. __________________

That's why I asked the question. Seems everybody's market has a different "flavor" on the same concept. Is it a condo, is it a hotel? Is it really residential or is it really commercial disguised as residential? In my market, the individual owns the unit, but in most cases can only sell it back to the "management" who will then attempt to sell it again on the "open market". But the "open market" is limited to a certain type of buyer.

Also, in my market, there are no permanent residents...only short term tenants like in a hotel....daily, weekly or 2 weeks tops. Vacancies at certain times of the year are very high (summer..July & August). Other times of the year or during special events (Bike Week, Speed Week, Spring Break) there is a waiting list for rooms. Also as noted in my previous post, the older hotels that have been converted to this type of unit ownership, many of the units don't have kitchens. How can these be considered residential?

 

[Don Clark]

Definition of residential/IRS Tax Code

Chris,

I am no expert but my accountant has told me that the IRS definition of "residential" has nothing to do with real estate. Their definition of residential says that there must be a place to wash and prepare food(microwave OK as cooking device), a toilet, and a place to sleep. I am told that sail boats, RV's, even a cruise ship that has gone condo would qualify as residential. However, i only appraise real estate so I looked carefully at the assessment records and it was and is classified as residential condo. We have so many versions of condos in this market that I have lost count. BTW, the unit owner is free to sell the unit to anyone they want to.

 

[Howard Klahr]

Condo Hotel Units - Complex Commercial Assignment

Condo Hotels are clearly commercial properties as intended by appraisal guidelines. Remember that hotels, retirement homes (nursing homes/ACLF’s Skilled Nursing Facilities), Multi-Family projects, etc are all considered residential in regards to land use regulations in many areas. That does not however change the fact that these are complex commercial properties with regard to valuation standards.

As noted by an article in Hotel Business.com (see the following link - http://www.hotelbusiness.com/links/news/news_story.asp?ID=27517), “There is no agreed upon or published definition of what a condo-hotel is.”. However, the article goes on to report that in order to be successful, a condo hotel project must be able to stand alone as a hotel operation.

Condo hotels are actually utilized by developers/hotel operators more of as a financing vehicle. This type of ownership structure allows the developer/operator to obtain greater leverage versus traditional financing available to a pure hotel (approx 70% - 85% versus 50% - 65%).

In regards to valuation by the income approach, remember that the cash flow associated with a single unit is controlled by an operating/management agreement that may not reflect market terms. Consequently, the terms of this agreement must be considered in all valuation approaches similar to performing a leased fee valuation (non-market terms require appropriate adjustment).

 

[PL1957]

I attended a panel discussion on the hotel industry where a question about condo/hotels as investments was asked. The panelist indicated that there was a lot of money to be made in condo hotels, primarily by the people who will pick up the pieces from individual unit owners in 7-10 years when they receive their assessment to refurbish the FF&E and common areas.

 

[Scott Fleming]

Keith,

We have a couple of those on the seawall in Galveston. Some are permenantly occupied, others rented by the day, weekend or week through a management company. When I explain the situation to the lender, they always cancel the appraisal.

 

[Don Clark]

Not all are commercial

When a the rooms in a hotel are classified as residential by the local assessor, zoning allows residential in the type of zoning the hotel is under, and the units are not in any way associated with any commercial interest in the building(hotel) I have an will continue to appraise them as residential and use the condo form. Argue all you wish but that is the what they are, residential condo units. We also have entire condos where each unit is individually owned. The entire condo was created with the expectation that unit owners would likely rent them out on a weekly basis in the resort are. They are residential too.

 

[Couch Potato]

Don, I don't think there is definitive evidence against your position on these types of properties. We have detached, single family neighborhoods that operate the same as most condo/hotels. I don't think wether they are residential or commercial properties is near as important as understanding the market for them. Being aware of personal property involved in the transactions, guaranteed income streams and other abnormal factors is critical for these type of properties. It is also important to know they are rarely appropriate as comps for normal residential properties.

 

[Don Clark]

You nailed it

I have done several as I mentioned. I always look for sales withing the same condo-hotel. There have always been plenty of comps in the same condo(s). The GP is a great source of information. They can and have always provided the numbers, charts, for the investment side of the picture. All of the ones I have appraised get an annual return, not monthly on the investment. The amount they receive is based on a factor established by the GP. You can track the investment from day one to the present regardless of who owns the unit. In this market we have, as an example, and in addition to the type condo-hotel as noted:

Single family detached condos that own the site the unit is on.
Old 1950's style motel converted to a condo.
Apartments converted to a condo.
2 unit condos where the entire condo is 2 units, no fees, no association.
4plex & triplex condo's.
Manufactured Home Parks where each double section is a condo unit.

And, many other types, too numerous to mention. What one needs to keep in mind that a Condo(I know you know this Greg) is a form of ownership, not archetecture.

Now, if a condo-hotel was set up where each unit owner shared in any type of commercial interest, the I would agree that it might be commercial, otherwise, IMNSHO, it is not.