Words of Caution about the Condo-Hotels Craze
One travel industry leader says the mushrooming growth of condo hotels could turn out not to be the boon many think it will, according to an article in the Orlando Business Journal by Bob Mervine. The article quotes Abe Pizam, dean of the Rosen College of Hospitality at the University of Central Florida, who points out a number of potential problems if the sales of large numbers of new condo hotels in the area are not successful.
Mr. Pizam notes that at the end of 2005 there were 108 condo hotels -- with 37,150 units -- under construction nationally. He says that while developers like these projects for their high rates of return—often 30%--operators may have a more difficult time. Moreover, investors who purchase these units tend to expect that the value of the unit will appreciate at least as fast as residential real estate, which may not happen. If it does not happen, the result could be a massive sell-off similar to the sell-off of time-share units in the 1970s and 1980s, he says.
We agree with the words of caution of Dean Pizam. At this point, condo-hotels are an unproven investment. Traditional individual vacation homes are a safer investment. Most important, if you own your property, you have the right to manage it or change the management you hire. Thus, you have a greater chance of making a profitable investment.
