Condo Hotel Lawyer-Las Vegas Report: What drives successful sellouts today? - By Jim Butler, author of www.HotelLawBlog.com

A return to fundamentals, a new emphasis on integration of project components at a higher level, and projects made outstandingly successful by individual project merits.

And that is the key point of today's message-generalizations may strongly suggest one approach to success in specific areas, but particular markets and circumstances will validate others. So let's get into the specifics to see what I mean.

What drives the successful sell outs now?

As I said before, there is a "sea change" going on, a total transformation of the condo hotel industry. This transformation will be good for quality players and for the long run, but will be painful for some in the short run. There will be a renewed emphasis on quality and a punctilious commitment to delivery on expectations-managing those expectations realistically, but then delivering on them.

The condo hotel phenomenon is driven by the buyers of the units. If they don't buy, you don't have a condo hotel! It's that simple. So what do you do to have a successful sell out in today's market? Like the Trump 8-hour blow out in Waikiki or the Paul Allen one-day sell out?

A critical part of it is the inherent quality of the project and its administration ... quality planning, quality product, the right team, and great execution. Now, more than ever, you need your entire team assembled up front and providing their input in a coordinated fashion-at the front end of the project. You need your marketing team-the men and women who will actually sell the product to your buyers-to be talking with your lawyers and architects and designers to put together the right product to sell. Do you want to be like GM in the 1960s building what it wants to and trying to shove it down the consumers' throats, or like Toyota, diligently studying what the consumer wants and trying to build a better version of their dream? It lead Toyota on to unimagined success. I suggest that is the model to follow.

Marketing, Marketing, Marketing. In the U.S., with the SEC restrictions, condo hotels are best marketed by real specialists, not the local residential brokers-unless they are properly supervised, trained and directed. Everyone wants to think they can make this work but it usually does not. Real estate brokers are used to talking about values, income, appreciation, investment value and all the things that are forbidden for condo hotel sales unless you want to be a security. [You do not! Trust me on this.] So think, the specialists in condo hotel sales like Sunburst, Weitzman, Sunshine, Playground, and a handful of others.

Use restrictions. For SEC reasons, the developer cannot impose significant restrictions on owners' use of their condos, unless they are merely passing through reasonable and pre-existing municipal ordinance restrictions (NOT something negotiated in a development agreement!). Some think that use restrictions are a God-send, helping them creates a viable hotel operation by making it more likely that unit owners will put their units into a rental pool. I would rather rely on owners' instincts and fear that use restrictions are more likely to limit buyer incentives. Apparently this depends very much on the individual market and buyer expectations. Many buyers in many markets to not appear concerned about use restrictions (whether imposed by municipalities in the U.S. or by developers outside the U.S.). Do your market research!

What should the unit look like? Beauty is in the eye of the beholder, and apparently that eye varies widely from market to market, and price range to price range. The one thing that is clear in the TRANSFORMATION, is that you better identify the buyer for YOUR unit and build what he or she wants. This is not the time to play 'Field of Dreams' where if you build it they will come. Find out what they want to come to, and build THAT.

Luxury or budget? Again, I don't know, but personally I am inclined to go with the higher end of the spectrum. There were many speakers at the Luxury and Ultra-Luxury end of the spectrum claiming that demand for their product was undiminished. I think this is an extension of the theory that 'the rich can always afford what they want and will buy it' theory. I personally believe this has a lot of merit. I also think it is one of the factors that pushes condo hotels more into the residential mixed-use category of hotel-enhanced mixed-use. It may be that Ritz-Carlton and Four Seasons have it right. But all the other high end brands are very happy to go there too.

Brands. In many (most?) domestic situations, brand power is extremely valuable. It may be less so internationally. Generally speaking, in the U.S., and particularly at the higher end of the spectrum, a well-recognized brand will add substantial value to a project, make it more financeable, and provide a comfort level to unit buyers that is hard to replace. Irene Houck of InterContinental did a fine job at the symposium of describing how InterContinental has gone after this condo hotel segment and is a force to be reckoned with. So are Fairmont, Regent, Mandarin and a number of others. Many great brands (such as Ritz-Carlton and Four Seasons) are more interested in hotel-enhanced mixed-use with residential, but not condo hotel. Trump has become a 'brand' and many people are chasing it to see if they can tap into an 8 hour sellout like the Trump Waikiki.

But having said how important brands have become in this arena, and while I would 'generally' recommend a brand, there are many stunning examples of immensely successful projects where the branding has not been necessary and perhaps would not have helped. I would say these cases generally tend to be outside the U.S. or in unique markets where some aspect of the market, property, or history create a draw that transcends a brand, or almost creates its own brand.

Does celebrity status substitute for a brand? I don't know the answer to this, but one can look at a lot of specific bets by celebreties and use or their names to make condo hotel projects successful. Where do we start for examples? Well how about some of the situations we have covered here at www.HotelLawBlog.com recently? For example: Magic Johnson, Barry Sternlicht, Paul Allen, Andre Agassi and Stefanie Graf, and Shaquille O'Neal.

There may be many other factors that make a particular project successful. I like quality, sponsorship, planning, and buyer focus. I also like hotel-enhanced mixed-use for most projects, where the condo hotel element is one part of the regime, but only one part, with at least a significant dedicated traditional hotel room element. But I think integration is one of the most important elements. We will talk about that in future postings.

Butler's Maxim

Rule number one is that the project must work first and foremost as a hotel.

Rule number two is that you must manage and deliver on expectations of all stakeholders-condo buyers, lenders, operators, municipalities, and others.

I have a few other thoughts for condo hotel projects outside the U.S., and will save those for the next posting. I think the condo hotel market outside the U.S. is just starting and is ready to explode--particularly without the U.S. restrictions imposed by the SEC. But what can we contribute to that movement? Lots!

Our Perspective. OK. I admit it. We are prejudiced. We represent developers, owners and lenders. We don't have the conflicts of representing the brands or pure management companies. We have been the business and legal advisors to such clients on more than 85 hotel-enhanced mixed-use projects, all of which have at least a significant condo hotel element. These deals are in every major market in the U.S., as well as Latin America and Europe. They are a part of our $40 billion of hotel transactional experience involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.


About the Author
Jim Butler is recognized as one of the top hotel lawyers in the world. He devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM's Global Hospitality Group(R) -- a team of 50 seasoned professionals with more than $40 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, they have brought their practical advice to more than 80 "hotel-enhanced mixed-use" projects, a term Jim coined to fill a void in industry lexicon. This term describes one of the hottest developments in real estate-where hotels work together with shopping center, residential, office, retail, spa and sports facility components to mutually enhance the entire project's excitement and success.

Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right "fit" for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.

Jim is the author of the www.HotelLawBlog.com. He can be reached at +1 310.201.3526 or jbutler@jmbm.com .

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