Condo? Hotel? Timeshare? The uncertain economy and downturn in the real estate market have driven developers to create unique projects. Chicago has seen several “condotel,” developments, where units are sold fully furnished and come with daily maid service. Building amenities resemble those of hotels, and owners can use the units themselves or rent them through building management.
Both California and New York have seen variations of this concept, driven by a developer’s desire to put condo units in a location strapped with varying restrictions. In southwest Los Angeles, Lowe Enterprises built 50 condos on a strip of oceanfront property that the California Coastal Commission wanted to protect for public access to the shoreline. The resulting development allows owners to use their property for only 60 days a year, and no more than 29 days in a row. For the remainder of the time the condo units are available for rent to the public.
Potential owners at Trump SoHo, which is scheduled to open this spring, are limited to 120 days of residency per year, and only 29 straight days in any 36-day period. The structure was built in an area not zoned for permanent residences. Hotels, however, are within the legal zoning restrictions. There are several additional developments across the country with creative occupancy and ownership structures.
Owners purchase these units with the expectation of generating income from the rental nights. However, while the economy has slumped, hotel vacancy rates across the country have risen, putting unit owners in a position to make little or no money on their investments. Additionally, some potential buyers who have contracted for these units are having difficulty securing financing, putting future sales at risk and developers in even tighter financial positions.
Industry experts believe that this concept may have been very successful when these developments started, when the real estate market was very healthy. However, most non-traditional residency developments, including those in downtown Chicago, have proved disappointing to both owners and developers.