Condo/Hotel Appraisal

[Mike Boyd]

I don't think i made myself entirely clear. This project is under construction so there are no internal rents at this point.

Then you would have to use outside comps of similar sized condos. The hotel amenities would have to be compared with the outside condo amenities and possibly adjusted.....although there may be off setting factors. The developer's sales people must be projecting what the rents would bring in. I would check regular hotel vacancy factors in your market area as well as hotel rates. Difficult assignment requiring more than usual research and documentation. Charge accordingly.

 

[Ray Miller]

CondoTells come in all shapes and sizes. Dave gave a good answer.

Some units are three or four rooms and each room can be rented to different families at the same time per night in some of these.

Like Dave said most are sold with the goodies. Be sure and see how much additional you unit is paying in all the different fees that go with one of these projects.

I have found they are a great way to loose money if you buy one. They just never seem to cover the cost of doing business.

 

[Keith Walker]

You guys are awesome. Thanks for your help.

 

[Dave Smith]

To quote Mike Boyd

I would check regular hotel vacancy factors in your market area as well as hotel rates.

Mike, I fail to see how hotel vacancy rates would in any way relate to a condo hotel unit's value. A hotel and a condo hotel (resort condo, or as Ray said condo-tel) are totally different animals.

Keith, again I suggest you discuss the situation with your client. I had a case about ten years ago where all I could give the client was pending sales in the project as evidence of what the value would be when the project was completed and the units were actually closed. There were 42 units in the project and I provided hard evidence of 32 pending sales, about half of which I had or was going to appraise. I actually had three clients that were completely willing to use my "pending" data for making their loans. In all cases they were in house loans so Fannie had nothing to say about it. Its all about "scope of work."

You could even used some pending sale in other projects if you can get them from MLS or the developers, assuming your client would agree to the "pending" approach." Sometimes we can only give a client what is available in the way of data.

By the way, where are you located???

 

[Don Clark]

Condo Hotel

I have appraised several condo units that are in hotels. There is usually a General Partnership. They can make your life a lot easier if you will let them know what you are doing and what you need. The ones I have done are hotels open to the public. Individuals buy a hotel room/condo. They are usually simple investments. Normally the owner can stay there 14 days a year at a reduced rate. The GP owns the Front Desk Operations, resturaunt, gift shop, and other services. The unit owner is paid on a percentage basis usually anually. I have done 10-12 at least.

 

[Keith Walker]

Dave,

I am located in fabulous Las Vegas, Nevada. I really want to ensure that I employ a correct approach just because of the nature of our market.

My initial understanding of how this particular development works is this.

I buy a unit and I have the option to live in it year round, one day a month whatever the case may be. At my choosing, the hotel will rent out my room as a "hotel room" at the hotels regular room rates for that time period. There is a hotel management fee associated with this which I believe to be 50% of room rate. If the room rents for $300/nt the owner pockets $150. The owner as well as any guest of the hotel has full access to all hotel amenities as well as the individual tower amenities associated with the unit. Owners have vip access to all hotel amenities including casino, restaurants etc. In addition there are HOA fees as well.

With the lack of comps of "condo-tels" I guess I will follow the suggestion of using high rise comps and adjusting for amenities if there is a market basis to do so. I'm undecided on the Income approach though. I thought about using pendings with projected rent rates to get a GRM. I also thought that I should substantiate the rates by doing a comparsison study of hotel rates and vacancy rates. However, with the lack of closed comparables, the Income Approach may be in effect not applicable due to lack of sales that rent. In which case maybe I should just do an Income/operating statement to hopefully prove the feasibility of the purchase and then let the underwriter decide. Which of course opens up a whole new can of worms. The underwriters haven't seen any of these reports yet either.

Any other thoughts, suggestions, or whatever are welcome.

 

[Chris Colston]

I have appraised several condo units that are in hotels. There is usually a General Partnership. They can make your life a lot easier if you will let them know what you are doing and what you need. The ones I have done are hotels open to the public. Individuals buy a hotel room/condo. They are usually simple investments. Normally the owner can stay there 14 days a year at a reduced rate. The GP owns the Front Desk Operations, resturaunt, gift shop, and other services. The unit owner is paid on a percentage basis usually anually. I have done 10-12 at least.

Have you completed these as Residential or Commercial? The situation you describe, it is my understanding, which could be incorrect, these have to be considered as commerical.

My mother and step-father own several units in various condo-tels along the ocean in Daytona Beach. They pay a management fee just like an HOA fee in a regular condo. They get a check each month or each quarter, depending on the agreement, based on the total rentals for that period. These units are usually operated as an investment business (they are taxed that way by the IRS).

I do know this much, FANNIE MAE won't touch them. FANNIE MAE considers them non-residential commercial property due to the high rental percentages. NO ONE lives in these units, permanently. The older ones, converted from actual hotels, don't have kitchens. So if anyone is appraising these with the idea of the client selling it to the secondary market, be very clear WHO they intend to sell the loan to.

Keith, since it is new construction, get a set of the docs that have been filed with the your state. That will answer a lot of questions regarding management of the property and the type of rental/condo property you are dealing with.

 

[Couch Potato]

Mike, I fail to see how hotel vacancy rates would in any way relate to a condo hotel unit's value. A hotel and a condo hotel (resort condo, or as Ray said condo-tel) are totally different animals.

I don't think the animals are all that different. Physically they can be identical with the only real difference the form of ownership (and how the money is divided). I disagree with the idea that because it is only one unit that it is somehow a residential property and not a commercial property, especially if the owner of the unit owns other units in the building.

Be sure to analyze the management contract. Often the owner does not get money based on the actual rent of the unit, but rather leases the unit to the management company for a fixed amount and the management company then sub-leases to the guests. Vacancy is a non-issue in these situations.

 

[Mike Boyd]

To quote Mike Boyd

Mike, I fail to see how hotel vacancy rates would in any way relate to a condo hotel unit's value. A hotel and a condo hotel (resort condo, or as Ray said condo-tel) are totally different animals.

Dave.....if you are doing the GRM approach to value on this type of property I would think the vacancy factor is much greater than a typical month to month rental. Since it is rented on a daily or even weekly basis the rents are going to be much higher until you deduct the vacancy factor. That would only be necessary if you have NO COMPS of similar condo/hotel units and must compare it to a regular condo with projected year round occupancy. I have never done one so maybe I just do not understand how they work.

 

[C. Kevin Bokoske MAI]

Depending upon the agreement to put the unit in the rental pool or to withhold it from the pool, these are sometimes classified as "securities", similar to a limited partnership share. Just trying to alert you, not to confuse you. Do you have all the printed material from the developer? That may provide some clues also.