A true condo hotel isn’t a traditional real estate play, according to Jim Butler, partner at Jeffer, Mangels, Butler & Marmaro LLP, which specializes in the hospitality industry.
A condo hotel runs like a traditional hotel. But owners aren’t required to rent their units when they’re not used. And income is earned according to individual room rentals rather than pooled and split among all owners.
“Pooling is a bad word,” Butler said. “If you do that, you create a security” under Securities and Exchange Commission rules, he said.
Pooling also provides challenges on the operations side.
Condo hotel operators are charged with making sure condos are treated equally when in the rental pool. They must keep track of rental income and maintenance expenses for each unit and provide regular reports to owners.
“It’s like running 400 small hotels instead of one big one,” said Greg Casserly, president of Newport Beach-based Tarsadia Hotels Inc.
Tarsadia, which owns or operates 17 traditional hotels, developed its own management software to oversee the Hard Rock San Diego, a condo hotel that it expects to open in 2007.