Posted by John Vosilla on January 23, 2006 at 23:29:03:
“Heavy loss if you service debt. Concept is that appreciation erases all that pain…”
Last time out those types of units fell anywhere from 50-80% in the first part of the 1990’s. Many I’m familiar with were in very good locations right by International Drive and minutes from all the resorts… Only positive is a likely declining dollar brings in a ton of European tourists. Bad is RE downturn risk, hurricanes killing what was a strong summer season and managment risk. They take a huge cut, you pay all the taxes, HOA dues, insurance and repairs. Needless to say the odds of maintaining a positive cap rate year in and year out are pretty slim…
Pre-Con condo hotel in Orlando - Posted by fragmented
Posted by fragmented on January 23, 2006 at 08:57:48:
A family member is thinking of buying a unit in a condo hotel in
Celebration, Florida. The construction of the condo hotel is to begin in
January '06…Completion is to be sometime in '07. I say the market is
overbuilt and he will lose money. He thinks the property will
appreciate maybe 18 - 20% per year and that the occupancy rate will
be about 80%. May I have the benefit of other opinions? Thanks.
Re: Pre-Con condo hotel in Orlando - Posted by Tom Curler
Posted by Tom Curler on January 24, 2006 at 22:09:01:
I have been watching the Orlando and Celebration area condo market for some time now. There are tons of condos recently sold but are sitting empty as the owners are looking for renters real bad. Check out the Orlando area called MetroWest. Full of apts. converted to condos, but they now resemble ghost towns, since no one lives there. All owners are strictly counting on appreciation.
Celebration area has an area called Artisia (or similar name). Hundreds of sold out condos, and the investors are desperately seeking to sell or rent. Entire Orlando area condos are way overbuilt, and many more are coming on line. BAD, BAD time to get in at this time.
Re: Pre-Con condo hotel in Orlando - Posted by fragmented
Posted by fragmented on January 23, 2006 at 19:54:22:
Thanks, JT-IN and Matthew, for your very helpful comments. I believe the
signs are there that the Orlando area may be overbuilt soon – if not
already. It will be an interesting wait-and-see. Thanks again.
No opinion on rate of return, because that is just to hard to pinpoint given the current dynamics of the market. However, I will comment on the concept of the Condo-Hotel… I personally don’t like it at all. I have recently seen another question here concerning the idea…
My thoughts are that these Hotel hybrids are simply obtaining a cheap means of financing from the purchaser, which allows the operator to operate their Hotel business, on your nickel… If the RE market were to maintain its pace of the past 5 years, the owner would have a decent return in spite of the poor economics of such an investment. However, if the appreciation cools, and it most certainly will, then the future look of these hybrids will be considerably different. In other words, absent soaring prices, the overhead that is passed on to the Condo owner doesn’t make sense, IMO.
So my opinion is that they will not see 20% appreciation, nor possibly any increase, if the real estate prices are only modestly increasing, or worse. If you applied the expense factor on the ones that I have seen, with flat RE prices, the concept becomes unsaleable… So I think that now is not the time for most markets… maybe DisneyWorld is different, who knows…?
JT-IN
Opionion based on the operator taking large % of cashflow, and distributions will not come close to breakeven considering you then pay a Condo fee, Property taxes and debt service. The ones that I have looked at provided for a 1-2% return, if no debt service, after Condo fee and taxes. Heavy loss if you service debt. Concept is that appreciation erases all that pain…
Frag-
As a recent transplant from O-town. Heres my take. Celebration is the upper end of South Orlando. There are a lot of foreign investors and tourist rentals in the area. Our dollar has fallen against the euro and yen which makes the area attractive to the foreign money to visit and invest. I think it is possible to go 20% but would say 12%-13% is more realistic.