DAVID ARTHUR WALTERS
Welcome to the wonderful world of condominium hotels. Condominium hotels have been around since the 1980s on a small scale, particularly in resort areas, such as ski towns. Condo-hotel unit owners were certain to have a place to stay during the season, and they could otherwise rent their units out, in which case they could, as landlords, deduct relevant expenses against the income realized. Furthermore, condo-hotel ownership offered certain tax advantages that made real property ownership appealing as a hedge against inflation and an opportunity to realize capital gains at a low tax rate relative to the tax on ordinary income. But condo hotels lost their tax-deduction luster after the passage of the 1986 Tax Reform Act, which, among other things, prevented condo hotel investors from deducting “passive” net losses from their “active” ordinary income.
Fully furnished, so-called transient condominium apartments have been rented out on a short-term basis to tourists for many years. In Hawaii, for instance, real estate management companies do a brisk business in short-term condo rentals on behalf of unit owners. The obvious thing to do for efficiency’s sake was to place a condominium complex under central hotel management. Existing hotels could be converted to that end or new ones built. Only recently has condo-hotel ownership become the rage, particularly in Florida, a state where wheeling and dealing in real estate and other much less tangible things is the traditional pastime for people on the make and take. In fact, Florida led the condo hotel activity twenty years ago, and now it leads the resurgence: a fourth of the condo hotels recently planned for the United States were in Florida
The recent mini-boom in condo hotels rose from the ashes of the World Trade Center. Tourism tanked after the terrorist attacks. Traditional lenders were not interested in risking money on hotels. Hotel owners needed cash to cover operating expenses or wanted to bail out altogether. Why not convert the hotel rooms to condominiums and sell them directly to the public? At least there would be no loan payments to make during the first few years; ninety-percent of the value of the project could be financed by condo hotel investors. Happily for developers, it is much easier to sell equity under the guise of hotel-room usage to small investors, who are relatively uninformed and tend to buy on whims, rather than raise loans from traditional lenders, who tend to be more knowledgeable and cautious when taking risks. If the original hotel owners and operators did not want out of the hotel business, they could use the condo-hotel investors’ money to revamp the premises and take a management contract to retain control over marketing and operations.
The concept took off and money poured in from small investors. If they so chose, they could live in their respective rooms year around; but that was highly unlikely, for not many people would want to reside indefinitely in a hotel room surrounded by tourists. Most buyers would rather invest in the condo-hotel hospitality industry, putting their rooms in the rental pool in order to get a percentage of the gross revenue on their rooms, less relevant expenses. Of course if the hospitality business they invested in went south, their revenue would fall yet their condominium fees would remain the same, and their rising passive losses from the investment units would not be deductible from their ordinary income elsewhere.
Why not build brand new condo hotels? And why not mix things up a bit and devote enough units in a hotel to condominiums to fund development of the entire hotel? Those investments should raise the forty percent needed to secure debt financing for new construction. Soon, around seventy-five percent of hotel developments would have a condo-hotel component. After all, the condo hotel offers optimists the best of all possible worlds. Never mind the pessimists – fortunes are made by repetition of positive publicity while ignoring naysayers during good times. During bad times, vacations are cancelled, second homes if not third homes are unwanted burdens; and the lower echelon of condo-hotel investors, who tend to be under fifty and earning around $85,000 when they are flush, tighten their belts, default and walk away; if their backs are against the wall, they might demand an SEC investigation and sue the condo-hotel developers and their brokers for fraud. Of course the hotel management would already be having horrendous problems with irate condominium owner/activists, who regret agreeing to forfeit half the rent to management in the first place, over expenses and the use of common areas. Of course the owners of the swankest resorts will barely bat an eyelash under the circumstances.
But mind you that even if sweet dreams do not come true, Condotelworlde will remain the best possible world of all worlds, at least according to the optimists with interests vested in it. “What’s optimism?” asked Cacambo. “Alas,” responded Voltaire’s Candide, “it’s a mania for insisting that everything is all right when everything is going wrong.” Despite those wrongs, concluded Candide on an optimistic note, “we must cultivate our garden.” And while cultivating it we must think positively. Even the Florida pessimist might optimistically conclude that Florida will be spared the really big natural disaster, hence the demand for condo hotel units will be impossible to meet for many years after the great northeastern hurricane strikes – perchance cosmopolitan Miami will become the continent’s greatest onshore financial center if not its new capital.
“A condo hotel unit represents the best of all worlds. It’s a hassle-free, luxurious second home in a fantastic vacation destination. It generates rent revenue that offsets the cost of ownership. And it’s an investment with great potential for appreciation,” reads Florida’s Condo Hotel Center website, a system developed by broker Joel Greene, Condo Hotel Center’s president. He claims he has built a better mousetrap, figuratively speaking, a system that has made him more efficient and successful. The system, he says, has so far this year captured for him, personally, double the earnings of the best year he had in the sixteen years before he built it. As a result of the increase in his disposable income, he says, he not only sells real estate, he invests in it as well.
Mr. Greene insists that his reference to a mousetrap should not be taken out of context; that is, we should not infer that he believes his prospects are mice. Yet the metaphor is appealing because the cheese at Condo Hotel Center certainly looks tasty. Interested persons can find favorable testimonials onsite, together with an excellent menu of valuable, free information about the market and the select condo hotel units that Mr. Greene and his colleagues would be glad to earn a part of the commissions paid by sellers. Ninety-five percent of the prospects, he stated in a January, 24, 2005 Miami Herald interview, are more interested in investing in the units than living in them. Ricardo Dunin, who pioneered the Mutiny, South Florida’s first condo-hotel project, in 1999, said in the same interview, “Don’t buy a condo-hotel unit as an investment. Just don’t do it.”
But it seems that most people who are selling condo-hotel units are a good deal more positive on the investment outlook than investors, although federal law bars real estate brokers from marketing the units as investments. Developers and brokers are likely to run afoul of the securities’ laws when they stress rental income when pitching condo hotel units, therefore salespersons are likely to point out that the condo-hotel world’s premium lifestyle alone is worth the, er, ah, expenditure, well worth paying a premium for. “Cash flow should not be the main reason to buy,” states Condo Hotel Center publicity, skirting the law – getting around it is so bothersome that some developers are seriously considering marketing condo hotel units as registered securities. Condo Hotel Center flirts with the law: “Think of the revenue generated by your hotel condo unit in the rental program as helping to offset your costs…. If you buy a quality property in a good location, you could end up with not only a second great home but a real estate investment that appreciates with time and will net you a profit when you sell.” Moreover, “Prices for condo hotel units have been appreciating at a faster rate than traditional condos or single family homes, making them all the more attractive to real estate investors.” The value of an investment, as we know, is closely associated with cash flow. Of course a public security offering should explicitly state the risks at length, one risk being that higher prices entail greater risk in an exuberant, speculative market.
The future remains bright even in its darkest corners, in some broker’s minds. “Miami is an untapped metropolis,” pronounced Mark Zilbert, whose condo flipping facility is at www.condoflip.com. So small investors have cause to hope that Miami at least is not a mousetrap where mice and men shall soon be tapped out. This particular product and time are presumably different. Statistical history indicates that people avoid purchasing and maintaining ownership of second and third homes during downturns, but Condo Hotel Center has published Bob Waun’s analytical report to the contrary. Mr. Waun, a former mortgage banker and now CEO of Michigan’s Vacation Finance, claims that the condominium bubble is so much bunk dramatized by the Press – we believe prophecies of doom enthrall pessimists. Notwithstanding the occurrence of certain inexplicable anomalies once attributed to God’s mysterious providence, probability based on supply-and-demand statistics gives rational analysts cause to expect long-term trends to continue to the long-run advantage of folks who have the foresight to take the plunge now. The current law of averages dictates that the upward inclination to buy second and third homes will be supported by the relatively small but growing population of Boomers and Echo-Boomers who have faith in inheritances – that reminds us of the credulous man who leaped from the Brooklyn Bridge to his death on December 31, leaving behind a note that only 9 people before him had done the same so far that year, so he was complying with the Law of Averages, that 10 people would jump every year. But according to recent statistical studies the retirement river will run dry for the bulk of the ageing population; they can expect dire poverty; that threat alone is enough to induce our already disaffected youth into believing that if they do not save and invest enough money for professionals to handle and get a high return on in the form of high salaries, commissions, and capital gains, even dog food will be too expensive for them to eat when they mature.
Luxury creates its own private world; if you build a field of diamonds rich people will undoubtedly jet in, and the place in the middle of nowhere will soon be the in place to be. Still, the location of a property is still of considerable importance to the bulging belly bourgeoisie. Orlando looks good, Mr. Greene insisted in a June 30, 2006 Orlando Business Journal article. Although Condo Hotel Center does not have an office listed in the Orlando directory, the esteemed journal reported that Mr. Greene’s Orlando branch office had already sold 50 units so far in 2006, priced in the half-million dollar range – not bad for a virtual branch office. Mr. Greene’s opinion was published in response to a statement of Abe Pizan, dean of the Rosen College of Hotel Management at the University of Central Florida. Mr. Pizan referred to a negative report by the National Association of Condo Hotel Owners to the effect that condo hotels are poor investments. Condo hotels have a negative cash flow due to oversupply and high costs, particularly in Miami, hence owners will have to inject more cash. “I’ve said for a while that this is a bubble that will burst,” Mr. Pizan reiterated, “and people are taking a great risk.” But a May 21, 2006 report in The Philadelphia Inquirer seems to support Mr. Greene’s rosy anecdotal point, that the Orlando market is a good location for condo hotels. After all, well over a million people convention there, and there are only three thousand appropriate rooms within walking distance. But price declines in regular condominiums, reads the report, are being experienced in cities with overabundant units where the market is dominated by investors; for instance, Miami and Chicago.
As for the hospitality or hotel end of the condo hotel business, South Florida Business Journal, in an article dated July 21, 2006, quoted McCabe Research’s opinion that “there is limited data to justify future room rates, occupancy or positive returns, and fairly represent the risks and rewards for potential buyers.” It was only in the year prior, on September 7, 2005, that the prestigious Real Estate Weekly quoted Daniel Lasik, national director of hospitality for Ernst and Young, as stating, “There is a big debate in the industry whether or not traditionally branded hotel companies should be going into the condo business. Why not just do a hotel project that makes sense without a condo attached is what a lot of people are asking. There’s certainly enough capital looking for a home for projects to get financed, with or without the money condos generate.” As for Miami’s crane-ridden market, “Who will buy all this stuff?” he asked.
Since the value of condo hotels shall be presumably determined by the hospitality market if not investment returns of unit owners, we may turn to the July 25, 2006 article in The Miami Herald’s Hospitality Section, under the rubric, ‘Report grim on hotels – South Florida’s economy may have another bubble to worry about. A new report says hotel rates have grown so fast in Miami that the industry is heading for a downturn next year.’ In fine, Todd Wheaton Research predicted a 15 percent drop in room revenues for full-service hotels in Miami-Dade County, the first drop since the recovery from the 2001 terrorist attacks – we have already noted that those attacks made condo hotel financing the modus operandi since hotels could not get financing elsewhere. Nonetheless, the Herald reports, “several local executives in the lodging industry predicted a strong year for 2007.”
On July 29, 2006, the New York Times reported that a general housing slowdown is taking a big toll on the economy, wherefore it is feared that the drag might become a resounding crash. “The biggest risk, economists say, is that the optimism that fed the real estate boom will reverse dramatically. The number of homes for sale has surged in recent months, particularly in once-hot markets, like the Northeast, Florida, California and parts of the southwest.
Of course the cat was let completely out of the bag on August 20, 2006, leaving condo speculators hoping there will be a dead cat bounce. ‘Condo boom now a bust, Overbuilding was rampant, Consultant sees market screeching to a halt,’ read the Sun-Sentinel headlines over the feature’s pages. No doubt worse reports are forthcoming.
It is only fair to cite so many negative reports after years of coming up with roses. The media has been extraordinarily interested in its own appreciating real estate as of late, and Corporate had done its best to impose its view of civic duty on the editorial staff so that prices might be boosted, often with advertising posing as hard news. Knight Ridder has been wheeling and dealing with its downtown Miami real estate while boosting downtown revitalization. The newspaper chain also recently sold its The Miami Herald. And then, in July 2006, the Herald raked up some muck on the public-private purveyors of the so-called workforce housing that is supposed to provide some relief from exorbitant prices; millions were paid out, yet few dwellings were built, and some of the properties were turned over to speculators for a profit; Miami retains it trophy for vice and is proud of it. And in Kansas City, Missouri, Knight Ridder’s Kansas City Star got a hundred-million dollar printing plant in exchange for incessantly boosting downtown revitalization for Mayor Kay Barnes, the former PMA (positive mental attitude) executive whose representation of the vested interests and dynastic power elite has been stellar – “Ignore Naysayers” is their motto.
Indeed it is amazing to what lengths Corporate will go to grab property: it collaborated with public officials and seized a Times Square property for The New York Times from its rightful owners, who did not want to sell at any price and whose business was profitable – the power of eminent domain was recently worshiped by the highest court in the land. All this and more, thanks to the Reign of Greed that finally managed to break the liberal consensus and replace its cowering intellectuals with alligators.
Now Joel Greene touts his Condo Hotel Center as “the unchallenged leader in the sale of condo hotel units throughout Florida and the nation,” and his publicity states that he has been interviewed as an expert in his field by such prestigious publications as The Wall Street Journal and The New York Times. He claims he has firsthand knowledge of Florida’s real estate because he has lived in Florida since age three. As a consequence of his work with clients from all over the world, we read that Joel is not only an expert in Florida hotel condos but is also a world-renowned specialist in foreign real estate, particularly Dubai condo hotels. His foreign niche website is at www.CondoHotelsDubai.com. In other words, Condo Hotel Center is a special place with special offerings, and is not the generic multiple-listing facility one can find at The Miami Herald’s website.
ZoomInfo.com informs us that Joel graduated from the University of Florida; he gained some real estate experience in apartment buildings and shopping center strips, and joined his father’s firm, Sheldon Greene & Associates, Inc. in 1988. Walla! In 2002, a breakthrough: “He recognized a developing real estate trend, that of condo hotels. He launched a new division of the firm called Condo Hotel Center and assumed the role of president. As for Mr. Greene’s professional integrity, it is apparently unimpeachable. Thus far we hear of nothing untoward in his professional conduct, unless trying to sell the best condo units money can buy at current prices is inherently unethical. “Joel is a member of the Greater Miami & Beaches Board of Realtors and has sat on the Board’s Grievance Committee and Professional Standards and Ethics Committee for the past nine years,” states his resume. But the board has not called him for years, he revealed. He is available if they need him, but he has virtually retired from his ethics position because he is overwhelmed with work and making money. When asked for a copy of the real estate board’s professional and ethical standards, he said interested parties must get them from the board – he did not keep the copies sent to him. “My ethics are beyond reproach,” he said. “I don't need a governing body to tell me how to act towards the public or the plagiarist competition I have to deal with.” Apparently competing real estate brokers are like dancers inasmuch as they consider it their duty to steal each others best moves – not to mention the ungrateful prospects who get Mr. Greene do all the leg work then scurry off to make the deal with another broker. Mr. Greene, it appears, has become a model for condo hotel salesmanship.
Speaking of models, Joel Greene followed in his father’s footsteps for awhile and beat a new bypath to relative success. Sheldon Greene’s hotel and motel brokerage business forged legendary history in Florida from 1970 to 2000. Condo Hotel Center is indeed a division of his father’s firm; Joel’s publicity gives ample credit to his dad as the visionary father of the Condo Hotel Center enterprise: “In 2002, it was Sheldon who recognized the condo hotel niche and decided to dedicate a division of his company to this burgeoning field.” Furthermore, “As CEO of Condo Hotel Center, Sheldon is the visionary for the company, seeing opportunities in places where others would never dream. His ideas and thoughts have been instrumental in keeping Condo Hotel Center at the forefront of the industry.” Sheldon himself is quoted: “I saw the concept of hassle-free luxury vacation homes as an ideal solution for baby boomers…. From a developer standpoint, condo hotels offer a way to make projects feasible that might not be in today’s difficult lending environment.”
Although Joel admits to “riding on his father’s coattails,” he believes he deserves credit for being the only person in the office including his fatherly partner who has actually sold condo hotel units, and plenty of them at that, and he has done so by putting in 17-hour days, seven days a week, for the last four years – his idea of taking a break is humoring Internet surfers who show up at his website and make asinine remarks – some of them have become his pen pals. True, Joel was barely surviving and may not have survived at all without his dad’s coattails in the early years, but thanks to that support it is his dad who can do some coattail-riding now. Just before Joel took off for six days, his “first vacation forever”, he confessed that he has a fear of rejection, which he overcomes with salesmanship. Time Management for Dummies indicates that he should reward himself with vacations more often, and then he may become a legendary figure in his own right.
No doubt both Sheldon and Joel would readily admit that their good fortune is in recognizing and taking advantage of trends, hence to some extent their destiny depends on circumstances – all seaworthy vessels rise and fall with the seas. Joel’s personal attitude is jaunty, nonetheless. Sailors might get the impression that he believes he is more than captain of a mere boat, thinking that the rising tide is his own doing. Well, nothing gets done until something is sold, wherefore a salesperson must keep the faith with abiding confidence.
Joel had the gumption to blaze the condo-hotel sales trail for the Sheldon family business, but his novel contribution to the enterprise is the Condo Hotel Center website, a contribution that suits the Internet Age of his generation. The website is excellent, thanks in part to his sister’s copywriting efforts. Joel’s increased income as a consequence would help prove the dubious hypothesis put forward in the early days of the Internet, that the Internet would become a highly profitable place to publish information, the key to successful advertising.
“We built Condo Hotel Center based on the premise that buyers are intelligent and savvy. If you give them accurate detailed information, they can analyze a property and determine whether it’s right for them. No hype or hard sell is needed. That’s been our guiding philosophy from the start – to become a trust information source on condo hotels.” Moreover, “Before you buy a condo hotel or fractional interest in a private residence club, there’s a lot you should know…. Condo Hotel Center can help you get smart in a hurry.” The prospective buyer can view property listings and photos of properties on the website, find answers to frequently asked questions, and be alerted via email of buying opportunities, all free of charge: “You sign no contracts with us. And you are never under any obligation…. our commissions are paid only by seller….”
We opined to Mr. Greene that since information is the key to his success, perhaps he could sell the information itself rather than using it as cheese in hopes of catching a mouse or two.
“We don't charge for our info,” he responded, “and we only get paid commissions if we are successful at closing a sale. We could charge for info, but there are so many places on the Internet to find it elsewhere, we'd simply lose out in the long run by not finding and cultivating buyers by offering it for free.”“I took your statement about "information" on your website for granted,” this independent journalist replied, “and assumed it is worth something per annum updated perhaps quarterly or else the advertisement would be false and the company not worth much except for you going out for commissions, making the whole thing vulnerable during downturns. But there is opportunity in downturns: I had some experience with a company whose reports went from $ 99 to over a quarter a million dollars a report after the last big real estate crash, when everyone got keen on exercising "due diligence. I saw the condominium multiple listing feature on the major newspaper websites, but the point is that you added value to the data, it is more informational. Why should people come to you if they can get the info elsewhere? I thought Condo Hotel Center was special!”
“Search for any particular property, and you can find info about it in more places than just condohotelcenter.com, but if you want detailed info about most of the properties out there all in one place, we should be your first stop. If it's on some other broker's site, the likelihood is that they found out about it from us and then added it to their site after stealing our best info and rewording it to avoid law suits by us.”
Joel Greene takes pride in himself as a man who likes to get to the point: he does not like people to beat around the bushes or ramble on and on, to “build a clock instead of telling the time,” he said. Yet we can safely assume that he would love to casually dine with the likes of condo-hotel developer Donald Trump, and would even rejoice if The Donald rambled on and on without getting to sharp points. In our opinion, Mr. Greene would be lapping up information soup to his advantage – Mr. Greene had his photograph taken with Mr. Trump, said he is more curious about The Donald’s hairline than his business secrets. Suffice it to say that the point of business if not the point of life for some people is making money, and for that one needs a good mousetrap, baited with Swiss cheese, if you will: perhaps a Swiss business lunch, a couple of hours beating around the bush over fine food and two bottles of excellent wine, would serve well to see what might be flushed out. Once the bait is taken, the guest’s resistance could be killed with kindness, to the end that both diners wind up a little fatter.
We envision that the glowing, hospitable future of Condo Hotel Center will be realized with the continuing practice of Guestology and Reverse Marketing. Guestology is the hospitality-business art of dealing with customers and fellow employees as if they were your personal guests. The practitioner of Reverse Marketing identifies with the satisfaction of consumer demands, with getting consumers what they really want; rather than trying to sell people something by shoving certain products and services down their throats; the reverse-marketer brings an excited crowd of consumers and producers together with quality resources and empowering tools that maximizes their opportunities to obtain what they need and want. With that in mind, the Condo Hotel Center may become a central resort for everything to do with condo hotels; that is, all virtual condo-hotel highways shall lead to Condo Hotel Center. We shall then liken Joel Greene’s virtual mousetrap to the most premium of the condo hotels he is so fond of, a place where his guests shall be pampered with all the amenities and services they might need to get the best their budget can buy or to unload or trade what they all ready have, whether Mr. Greene has a personal stake in the transaction or not. As for mice, Mickey Mouse shall have the most posh of penthouse units, undoubtedly under the Disney flag. Joel Greene’s guests shall freely engage in intercourse with one another at the Condo Hotel Center ballrooms and lounges. They may discuss the ins and outs and ups and downs of condotel ownership and everything else under the condo hotel sun over fine wine and aged cheese served poolside. Their gracious host shall lead by serving the condo-hotel community’s needs hand and foot, and for that he shall take frequently take working vacations to various resorts around the world, where his laptop will come in handy for writing guide books, filing insider reports with Condo Hotel World, and editing the artful magazine, Condotelworlde – of course the finest art shall be available for decorating condotel suites. Since the ingredients are in the kitchen, one might as well stand on one’s head and bake the cake. And for premium service one deserves a premium: fair is fair. The website alone, in our opinion, should be grossing $ 500,000 per annum in short order.
But Mr. Greene does not share our liking for the condotel industry: He would rather sell a few units and get out of the business altogether, hence our vision of the business is much too grand for him.
“As for your comment about there being more to my liking of condotels,” Mr. Greene responded to our suggestion that he should use his love for the business to build a clock or company to serve the industry as a whole instead of telling the time as it is now, “I would say you are reading more into me than you should. I'm a businessman, a salesperson of condo hotels. I sell them to make a living to feed my family, and not for any other reason. I never wanted to get into the business, and I won't be upset when I'm out, although I will have to figure out what to do with my 17 waking hours – maybe I'll write to you more often. Before I began selling condo hotels 4 years ago, I sold hotels and motels. Before that, apartment buildings. And, hopefully, after selling condo hotels, I'll never need to sell anything again, and I can reflect back on a successful career. “
The hotel-condo niche is the one and only place Mr. Greene claims to have world-renowned expertise. He said he does not care much about what market leaders outside of his own niche think. For example, take Joe Cayre, the man behind the multi-billion dollar Midtown Miami and a major investor in the World Trade Center, reputedly one of the savviest investors in the country, recently announced his intention to sell 80% of Midtown Miami, news that supported Chicken Little’s proposition that the sky is falling down on the Miami condo market. Mr. Cayre bought the Midtown Miami land dirt cheap and sold half of it for what he paid for the whole; that leaves the potential for an enormous capital gain on the remainder if any buyers can be found who have faith in his high opinion of its value. Mr. Cayre does not want to appear like a fat mouse abandoning ship and scurrying back to Manhattan after gorging himself on the local cheese: he wants to retain control over the property after selling the most of it. But it does not matter much to Joel Greene what Mr. Cayre thinks about the regular, condominium-apartment market. With few exceptions, states his publicity, Condo Hotel Center focuses on the sale of condo-hotel units, despite the fact that Mr. Greene is asked by brokers to help sell ordinary condominium buildings. One of the two exceptions he deigns to make in that regard happens to be Joe Cayre’s Midtown Miami, but that side business does not matter much, for the condo hotel world is the best of all possible worlds.
In response to a request for lessons, some hot tips, the lowdown on what is really going on in the Miami real estate market, condotel salesman Mr. Greene responded: “Keep looking. I’m not your guy for anything but condo hotel sales.” I think we get the point: No matter what the state of the market might be, it would behoove people who are interested in condo hotels to get with it and visit Condo Hotel Center’s website at www.condohotelcenter.com.