In late 2004, condo-hotels were touted as the next big thing in hospitality. Word was they would give hotels greater flexibility and prove a boon to developers who, it was said, could front-load financing based on their promise: semipermanent homes that could be rented out to defray costs.
At the heart of the condo-hotel drive was Robert Falor, whose Falor Companies spearheaded such projects primarily in his native Chicago and in south Florida. At one point, Falor had more than $1 billion committed in financing for ventures including the Hotel Blake, a former Hyatt on Chicago's Printers Row that morphed into a Nicky O before it stalled; Hotel 71, a 454-room hotel on East Wacker Drive in Chicago in which only 60 rooms were under contract in March (Falor reportedly owes $48 million to a mezzanine lender on it); a Nicky O (named after heiress Nicky Olivia Hilton, who was to have co-developed it) in Miami's South Beach; and the Royal Palm in South Beach, developed by R. Donahue Peebles, a real estate magnate now trying to regain control of the storied, controversial hotel. No stranger to lawsuits himself, Peebles claims the Falor Group mismanaged the Royal Palm, his evidence the property's $12-million loss in 2006 amid record revenues in that city's hospitality market.
Falor seems to have fallen on harder times than the niche itself. To some extent, that may reflect how the developer was covered at the dawn of what looked like a boom, when, it seemed, he would announce a new condo-hotel once a month. Where spin once ruled (this magazine profiled Falor, perhaps too glowingly, in early 2005), the downside is making headlines how.
Two people who know Falor from the Cheeca Lodge resort in Islamorada in the Florida Keys, where Falor originally entered the condo-hotel market, suggest Falor and his associates were effective in telling their side of the story, a side of promise, entrepreneurship and far-sighted real estate. Now, lawsuits dog Falor at the Cheeca Lodge, the Royal Palm, the Breakwater in South Beach and the Mayfair in Coconut Grove. Two other Falor condo-hotel projects in South Beach, the Edison and Breakwater, are in bankruptcy. A similar trail of failure tracks his Chicago efforts.
Falor could not be reached for comment.
“In everybody's business, there's always a bad apple,” says Bill Dougherty, the broker in charge of marketing Cheeca Lodge since 2003. “The Falors are not symptomatic of the condo hotel market,” he adds. “They are an aberration.”
Robert Falor; his younger brother, Chris; and his father, David “own only a small portion of an LLC that owns 15 percent of the Cheeca,” Dougherty says. “It's probably the best investment they ever had. The other partners in that LLC, my guess is, listened to some BS they gave them.”
James Johnson, Cheeca director of club membership, is more circumspect. “These circles are small and players can exert influence and power in various ways, so one must be careful,” he says. “People can pay money to have a public relations firm project them in a certain way…I've got to listen to what someone says, watch the actions, pay attention to the bottom line and what clients or potential clients or purchasers are saying.”
Dougherty, meanwhile, owns a Cheeca unit himself. “It is such a successful project for the multiple end users that people involved in condo hotels in Fort Lauderdale or Miami wish they had the kind of returns and numbers the Cheeca does,” he says. “I see it both from the developer resort side and from the end-user's side. The lawsuits pertaining to the Cheeca are amongst the partners in the LLC that owns approximately 15 percent of the Cheeca — and it's because of the Falors.”
If Falor has gone from poster boy to whipping boy, the same doesn't hold for the condo-hotel niche — at least in some cases. Take the Trump Soho Hotel Condominium, a Manhattan project selling for $5,000 a square foot. The project is to open in spring 2009.
“Selling is going very well,” says Julius Schwarz, executive vice president of The Bayrock Group, a managing partner in the project. “We're close to 25 percent sold.”
Over the summer, various neighborhood groups expressed displeasure, suggesting the Trump Soho would attract investors rather than residents; condo-hotels can't easily be marketed as investments, says the federal Securities & Exchange Commission. Nevertheless, the project appears to have weathered the opposition.
“The biggest challenge is that this is the first all-condo hotel in the city of New York,” says Schwarz. “It is zoned in a manufacturing district, which allows for hotel but no residences; we had to educate the city and the public as to what a condo hotel is: a luxury hotel where you stay from time to time but which is operated fully as a hotel.”
Despite the potential success of the 46-story Trump Soho and deposits made on more than 100 units at the 350-condominium Vista Royale Resort in suburban Orlando, the overall outlook for such projects is restrained. “There is very limited availability of credit and financing,” says Dante Alexander, president of the National Association of Condo Hotel Owners, a Phoenix, AZ-based non-profit. Only “a very select group of developers” have access to commercial financing that allows them to build “branded, well-positioned products in major metropolitan and resort destinations.”
“Hotel operators and developers started realizing how complex these are to structure and how fraught with legal risk the model is,” says Irene Hoek, vice president of development, InterContinental Hotels & Resorts. At present, InterContinental has only one such project in the works, and it is yet to break ground: the InterContinental Resorts & Residences Orlando, which Hoek says has potential inventory of 1,500 keys.
A GREY AREA
“The lack of existing law, of a framework around the business model, makes it a very grey area,” says Hoek, noting an excess of such product in the Orlando area. “I think the residential slowdown is certainly part of the reason” for the slowdown in condo-hotels, she adds.
At the same time, “we would certainly still consider this model if there wasn't a more simple model available to us in that particular market and if all the other aspects of the deal made sense.”
“The right project still works,” says Steve Glener, who arranges programming for Information Management Network, a pioneer in presenting programs on condo-hotels. “I have people speaking doing condo-hotels in college towns and water parks. And New York is still happening.”
“If it appropriately touches the audience, potential purchasers will become condo-hotel owners,” says Cheeca Lodge's Johnson. “Even at Cheeca, we have some resales now. Given this market for condo-hotels, that ain't half-bad.
“Who's to say if the market had continued at the feverish pace of three years ago, the Falors wouldn't have continued to shine as the true visionaries of the condo-hotel market?”
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