Robert Falor's Velocity

Robert Falor is so busy playing the condo hotel field, it seems he adds projects by the week. In mid-December, he was developing 12, with another 13 under contract. He's 36 and shuttles regularly between his Chicago home and southern Florida, where he's amassing quite a profile — and some choice South Beach property. A man on the move, Falor is “the guy,” says an associate, in condo hotels.

At home, Falor is developing the Century Building at 202 South State St. in the Loop and converting the former Hyatt on Printers Row to the Hotel Blake. In southern Florida, Falor Companies projects include joint ventures with Colony Capital in the Mayfair House Hotel in Coconut Grove and, with Cheeca Holdings, the Cheeca Lodge & Spa in Islamorada. Falor plans to close $1.2 billion in condo hotel buys by a year from now. What helps immensely is a $25-million investment from The Mitchell Companies, a Miami-based commercial property owner.

On its own, Falor Companies acquired the Breakwater and Edison hotels in South Beach. In the past month, Falor closed on the Royal Palm Crowne Plaza and the Tides, other notable South Beach properties. Robert Falor's target market is people with high disposable income who are eager to tout their participation in an exclusive membership.

Luxury is key to his ventures. At the Blake, a king room has a bay window, and windows open. Also included in the appointments: a 42-inch plasma TV in the living room, a CD and DVD player in each room, a 13-inch plasma in the marble-tiled bathroom, granite-topped vanities, and rich furniture. The color scheme is honey, mahogany, dark brown and red. At 480 square feet, this unit sold for $303,000.

The high-profile Falor is the first developer to spread this second-home concept out of Florida to cities with vibrant central business districts and what he calls “24-hour life.” Although a mere speck in the lodging firmament — only 15 to 20 such properties now representing less than one percent of the market, says Miami-based PricewaterhouseCoopers partner Scott Berman — the condo hotel is shining brightly. And Falor is clearly on a roll, in the news nearly non-stop since late summer 2004. Helping are public relations firms in Chicago and Miami and a “long-time network that has invested in our deals over the years.

“We currently actively own 12 and we have another 13 under contract,” he says of the condo hotel deals in which Falor Companies specialize. “We're doing partial or full conversion on each. Pent-up demand in the markets we've gone into for this product allows us to mitigate a risk in that we're able to sell a substantial amount within a six- to eight-month period that substantially reduces our exposure and in some cases eliminates debt.”

“When you build a hotel, the developer takes the major risk in the financing, which usually includes a personal guarantee,” says John Ayres, chairman and CEO of Coral Hospitality, a Naples, FL-based hospitality management and investment firm. “If you take the road of condominium hotel, your immediate risk is much less because you pre-sell the unit. Once you know you're pre-sold, you don't mind a personal guarantee because you already know where the money comes from.”

No matter the configuration, a condo hotel won't work unless the hotel part does, say various observers of this newly chic lodging segment.

“It's got to work as a hotel for it to work as a condo hotel,” says Rich Conti, president and COO of Boykin Lodging Co., a Cleveland hotel management and development operation that owns a condo hotel called Pink Shell BeachResort in Fort Myers, FL. “It's not an exit for a bad deal, which means it also works for the buyer. We don't buy anything that doesn't work as a hotel.”


We're not talking safety and inviolability here. Rather, we're touching on a complication that can muddy the sale of a condo hotel: a Securities and Exchange Commission regulation.

Essentially, whether a condo hotel room is real estate or security is a question that arises because rooms are offered for sale to people who can rent them as part of the hotel in a revenue share with the owner or manager.

Developers like condo hotels because they provide an income stream that can repay part of the construction loan upon completion of the hotel and closing of sale of the units. Buyers like them because they can amortize their loan by renting their property.

A catch can arise when a seller appeals to a buyer's desire to profit from such a return, leading the SEC to rule in 1973 that a condo hotel rental program can't be sold as an investment and that revenues derived from the unit be split between the unit owner and the hotel or management firm. Without an SEC registration, revenues cannot be “pooled” with other unit owners, says Lee Weeks, Coral Hospitality president and COO.

“We do not discuss the potential income from the hotel,” says Boykin's Conti. “If you do, you're selling a security. That's one of the many differences between selling a security versus selling real estate.”

“We're not selling income,” says Robert Falor. “We're selling real estate units with individual deeds. Whatever motivates people to buy is their business, as long as we're not speculating relative to future income.”

There are issues besides speculation. Consider this high-rise envisioned by Jim Butler, chairman of Los Angeles law firm Jeffer Mangels Butler & Marmaro. The ground floor is meeting space and hotel desk. The next five floors are dedicated hotel rooms. Another few floors are condos that don't go into the hotel rental pool. Then “you have branded rooms, with flexibility of pooling,” Butler says.

“These are very complex beasts,” he says. “In my vertical example, you've got pure hotel, with probably one owner; pure condos that can't even access room service, with one association; condos that are part of the (hotel rental) pool, with a different association; and amenities, like parking and spa, could fall under different ownership and management. All have to be coordinated to deliver seamless service to the guest and condo owner, and everybody must get paid. The profit splits are much more complex. If this isn't carefully orchestrated, you're begging for problems that are very difficult or impossible to fix.

“The downfall of condo hotels will be, if there is one — and I'm afraid many people are slapping these together and getting out — is that they're put together in economically unviable structures and consumers won't get what they bargained for,” he adds. Another potential pitfall “is the greed of the investor and the expectation of profit” leading to a “speculative bubble no different from the dotcom bust or tulips in the 1590s in Holland.”

JMBM will hold a one-day program, “Condo Hotels — Why All the Buzz? What You Need to Know,” at the Rancho Las Palmas Marriott Resort & Spa in Rancho Mirage, CA on March 11. Visit for more information.


Velocity, a key word in Robert Falor's vocabulary, applies both to his lifestyle and business plan. Without it, he suggests, his projects won't materialize. It has specific parameters.

“If we don't believe there's going to be strong velocity, we're not going to do the deal,” he says. “Our business plan is to do a complete sell-out of an asset, and if we can't do that in two years, we won't do the deal. And if we can't sell out a third to a half inside of a year, we won't do the deal.”

Other key requirements of a Falor venture are it must be developed in a place “with a 24-hour life and strong residential demand.” Resorts come first, then cities with strong central business districts.

“We're doing (deals in) Chicago, New York, Boston, Washington DC, Los Angeles, San Francisco,” he says. “We're definitely not afraid of 24-hour cities.”

Falor is convinced condo hotels are “here to stay. We believe it will be no different with what happened when apartments were being converted to condominiums in the ‘70s. This offers second-, third- and fourth-home buyers a wonderful alternative, because they have the ability to use it when they want to, and when they're not, to participate in a rental management program that allows them to offset part of their expenses of owning the unit.”

Condo hotels don't cost as much to market as timeshare and their “velocity is much stronger because it's one buyer per unit, not 51 or 52,” Falor says. Timeshare doesn't appeal to him because it “is not well-perceived at the upper end of the product chain,” he says. In contrast, condo hotels “haven't been bastardized,” he says of condo hotels. “They're fresh.”

Augmenting that upscale perception is a private club program Falor will unveil this month. “It will include all our properties, in addition to many other luxury properties, both domestic and international,” he says. A one-time initiation fee and an annual fee will buy options in lodging and travel, “private yacht charter, private jet charter, and other luxury amenities,” he says.


Branding matters — rather, the brand matters. In luxury, says Falor, upper-upscale brands like Four Seasons or Ritz-Carlton count. Mere upscale? Not.

“We stay away, for the most part, from major brands, like Starwood or Hilton,” says the outspoken entrepreneur. “We wouldn't stay away from a Four Seasons, a Ritz-Carlton, a Peninsula, a St. Regis. The luxury brands are appealing. The deluxe brands are not so appealing.”

Sheldon Greene, president of Miami real estate firm Sheldon Greene & Associates, demurs. “Four- or five-star properties like Ritz-Carlton, Hilton and Starwood have enormous reservation systems that bring in business. When you put a unit into the rental program, the income will help defray expenses and make you feel comfortable.”

Starwood executives claim the brand helps define the lifestyle for the owner no matter the segment. “Generally, the deal is driven by the developer,” says Jim Alderman, Starwood's vice president of development and acquisitions. Starwood sees condo hotels as a “structure to get the hotel deal done,” he adds, noting Starwood has “primarily stuck with resort areas.

“When someone chooses to spend $3 million on a condominium unit in a St. Regis building, we believe the brand is instrumental in creating a lot of the value added,” he says. “When you're buying St. Regis, you know you're buying the St. Regis lifestyle. The same with Westin, Luxury Collection, W. Not only does it help price, we believe it helps velocity, the speed with which they sell out.”

Name certainly figures at Trump International Hotel & Tower, the 688-unit, 90-story, 1,110-foot tall megaplex Donald Trump is developing on the site of the former Sun-Times building in Chicago's Loop. The mix is 227 condo hotel units, 461 residential condos. Where Falor's units cost $250,000 to $3.5 million, Trump's go for $636,000 for a 713-sq.-ft. studio to more than $25 million.

The hotel will open in 2007, the residential units in 2008, says Tere Proctor, director of sales. The $1-billion sellout is 75-percent accomplished. Plans call for extravagant retail and a super-deluxe spa, restaurants and a riverfront park. But what puts this over the top is the branding, Proctor says.

“You can actually attach a price for the branding alone,” she says. “We can sell to people outside of Chicago, which is really the smaller number, because they see the quality and they know it's Trump.”

Falor works on a more boutique level, with flags like Hard Rock Hotels — he may convert the Royal Palm Crowne Plaza in South Beach to a Hard Rock — and Kimpton Hotel Group will manage the Mayfair in Coconut Grove for Falor and Colony Capital.

“For us as an operator, it's the same as a traditionally owned hotel,” says Joe Long, executive vice president of acquisitions and development for Kimpton. “We take a basic management fee off the gross revenues and have an incentive management fee based on achieving certain levels.

“Where it's different for us is in accounting. In a 200-room hotel, you have 200 different people to account to — and we developed systems to equitably and evenly rent the units. You can't have a situation where a particular unit gets rented out more than others.”

Falor was seeking “hotels that were similar to the style we manage,” he says, “and felt our stylized hotels were a good fit with the desires of their prospective buyers. It was a good match between what buyers of these types of units would want with what we do as an operating company.”


Lenders view condo hotels as residential projects. Loans made to individual condo owners are treated like single-family or condo financing, offering up to 80 percent.

Falor works with Perry Capital, Oaktree Capital and Colony Capital in complicated condo hotel joint ventures with variable partners.

“We are in the process of finalizing a total of $800 million in first-mortgage debt that takes up 80 percent of loan to cost,” he says. “Once they understand the product, lenders realize that their exposure is significantly reduced because they take 100 percent of the proceeds on the units you sell until the debt is paid off.

“We're doing whatever we believe makes sense that has sound fundamentals,” Falor says. “We want a unique experience. We don't want a cookie-cutter experience.”


Think destination

Beachfront property is hot. So are ski resorts and gateway cities. Developers willing to convert hotels to condo hotels are likely to satisfy pent-up demand in areas with a 24-hour life. Choose your site and market wisely.

Select your brand with care

You might want to ally with a well-known brand that speaks to the moneyed consumer because its reservation system will help sell condo units in the hotel rental program. Choose your brand according to the market you're in — and the market you target.

Don't rush

Condo hotels may be today's buzz, but they're complicated. If you're a hotel brand, ally with the right developer. If you're a developer, link up with a brand or flag that runs hotels well. And be sure to have lawyers available.


Condo hotels are popping up all over. Here's a list of some proposed, in the pipeline or under construction:

  • Trump Hotel & Towers, Chicago
  • Conrad Indianapolis
  • Conrad Las Vegas
  • The Q Club, Fort Lauderdale
  • The Regent Bal Harbour, Bal Harbour, FL
  • Homewood Suites, Fort Lauderdale, FL
  • Gallery One, Fort Lauderdale
  • Acqualina, Sunny Isles, FL
  • Interlaken Resort, Lake Geneva, WI
  • Cosmopolitan Resort & Casino, Las Vegas

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