HOW TO MANAGE A CONDO-HOTEL AND HOA

In last years a very innovative but complex way of real estate ownership has become very popular and named a CONDO-HOTEL.

This type of business after this corona virus phase,will be basic to reactivate the economy in those hotels that have either a time share,vacational club or fractional ownership program,as members will be eager to spend sometime where they already bought a part time.

Having this alternative will benefit both sides as members will be using the hotels facilities and paying either maintenance or membership fees and hotels will get some revenues that will help them to start all over again.  

However,regardless where the project is located,this type of business requires an smart manage of relationships in order to make things work out,as in many cases some of the rooms are just condominiums units or they are hotel rooms adjacent to residential units,or even worse,the hotel rooms are located on different floors and depending of the operation contract between the condominium board of directors and the condo-hotel management,guests are allow to use the condominiums amenities and viceversa.

This type of business has attracted investors either from the construction companies,developers or from buyers,as from the side of the developers the possibility to sell a condo unit and at the same time keep the administration to operate the complex as a hotel in a rental program provides them a premium over the sales price for the condo-units.

And if you see this scheme from the point of view of buyers,using their units for vacations periods and at the same time getting an income from a rental program,helps them to defray the cost of ownership.

But things are not that simple…

In a hotel′s regular operation,ownership is held by one person or a single entity.

However,if we talk about a condo-hotel,things are quite different,as ownership is held by many pieces or parties,as per example,the developers and some of the condo-hotel′s rooms that are owned by different unit owners.

In some sales transactions,common areas are owned and operated by the developers but also the hotel′s operation is run by the developer which is the only one authorized to rent other rooms units under an agreement called “rental pool”.

RENTAL POOL:

A rental pool is created by a group of some owners and developers who decided to combine the income from all of their units and share expenses as well as any profit and loss,but also it is agreed that facilities will be shared(elevators,restaurants,bars,fitness center,business center,pools,meeting rooms,etc.etc.)

But there is also another alternative that people can use,,which is leaving their rooms administration to the developers and avoid maintenance fees,unit repairs,appliance or parts replacement,painting and some others that are paid by the condo-hotel management.

A condo-hotel management is complex,however if units owners and developers created an smart administration structure,things may work out well,but if they didn′t,there is always a path to elaborate the right administration where all parties get satisfied and even economical rewarded.

An important issue to take into consideration is that you should have an operation agreement between the condo owner and the manager or hotel operator,that will state who is responsible for tax payments or any other debts as in present times IRS,can easily check your financial statements by tracking your bank accounts or review payments from other people. 

As despite the complexity of the internal structures,a condo-hotel must normally be managed as any other hotel,and management must be focused to maximize GOP,and just like any other,success must be measured by:ROOMS OCCUPANCY,AVERAGE DAILY RATE,REVENUE PER AVAILABLE ROOM,OPERATION COSTS,FOOD&BEVERAGE COSTS AND ROI.,and of course budgets must be elaborated and approved,this will include sales&marketing expenses,and administration costs as well.

So if you thought that managing a condo-hotel was different from a normal hotel,think again,because when you measure the operation performance it does not matter what type of internal structure they have,what matters is if your current managing is adding value to your property.

However,in some condominiums things are different and the developer sold all units and left the full administration to a home owners association(HOA) or to a condominium owners association (COA)but in must of the times there is a lack of legal power to represent owners bests interests and those GAPS,makes things difficult,as they are not prepared or have time to organize themselves and work together to have everybody′s needs satisfied.

Some of the most frequent errors that occur in the management of a Condo-Hotel, is that owners after they have put together an association (HOA),decide to take over several of the activities that should be carried out by external entities,making some important mistakes of legal, economic and operational level type.

For this reason,it is important to take into account that the association (HOA) has specific responsibilities with the group of owners that chose them to take care of their interests and that by neglecting them they may be subject to legal sue for non-compliance with their primary functions.

Some of these responsibilities is to ensure that regulation is complied in regards with use of common areas, avoid disturbances,maintenance fees collected, economic expenses are controlled,monthly financial results are issued and to be specific to the origin and use of the economic resources, (maintenance fees) that all maintenance work quotations are compared versus others proposals,improvements to the building and follow-up of the minutes from the ordinary and extraordinary meetings, to comply to what was agreed in those meetings and in many cases they are related to legal issues on behalf of the association of owners and deal with different government offices.

Likewise, the association of owners of the condominium (HOA) has restrictions regarding the use of economic or material resources and even the board of directors is subject to comply with those limits (except emergency matters) and only the owners’ assembly in an ordinary or extraordinary meeting, can authorize extraordinary faculties to face urgent issues.

Many times,the administration make big errors using the contingency fund to solve cash flow problems to be able to face payments for public services(power,water supply,taxes,others) because they were not able to collect maintenance fees on time,but this is a serious failure and for which no one but the board of owners can authorize the use of those funds,but if they fail to request a written authorization the condo management may have a criminal sue from the association of owners. (HOA)

Also one of these major failures is to become responsible for the hotel operation, which not only involves the operation, but also the administration of economic resources and if those resources are not properly registered by the accounting department or they are not well managed or based on written approvals and according to the condominium rules&regulations,this may cause misunderstandings and frictions within the board of directors and owners’ board. And unfourtunately being the association (HOA) the hotel operator,will tend to incur a series of faults to the regulation or condominium bylaws,causing discomfort to residents or owners.

A simple example of this could be the use of common areas and the distribution of expenses as since they do not have defined or authorized parameters,cause that many expenses of the hotel operation are absorbed by the administration of the condominium,causing a patrimonial damage by the excessive use of areas, equipment,furniture and several other things,jeopardizing the value of the units.

Some of the questions you should ask if you pretend to turn your property into a condo hotel is:

Are you allow to rent your condo?as a hotel unit?

Is it a condo or a residential use restricted

Can you legally make a truly mixed condo-hotel or you are restricted by your condo rules&regulations(bylaws) to use your unit only as a residential home?

Are you aware that the condo hotel management will need to have faculties to change operations procedures and even make some changes to your administration and operation structures?

If you decide to rent your condo by yourself,are you aware that you will need to make your IRS declaration,pay taxes and be registered as an operator doing business with local authorities?

Finally….managing a condo-hotel is not just a matter of knowing how to run a business,the selected manager needs a lot of patience and be able to handle legal issues,and mainly..be able to deal with many interesting people,some of them from other countries,different cultures and even languages….but it shouldn′t be hard if your condo manager is good handling public relations.

ARMANDO MARTINEZ (HOTELS&CASINOS GM)