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PO Box 1212 Tampa, FL 33601 Pinellas Updated February 2006
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Tiny Piece Of Paradise
TARPON SPRINGS - For sale: 1960s-era motel room with that Florida feel. Great investment potential. Faded drapes and framed pelican prints stay.
First came the merging of condominiums and hotels. Then the conversion of apartments into condominiums.
Now the trend is broadening into what may be a uniquely Florida evolution - the condo-motel.
"This keeps affordable rental rooms in the area, and more people can afford to invest in these properties," said Chip Lowe, who is helping his father turn three area motels into condo-motels where rooms start at $119,000. "If you buy a vacation home and put it out for rent, you have no guarantee it will rent. But people stay in motels."
Local real estate brokers and national experts who track new condo-hotel projects and conversions say they have never heard of motel rooms being sold as they are. Generally, developers build new projects or gut buildings and upgrade amenities.
Perhaps the condo-motel was inevitable, driven by demand for tourist lodging and Florida's strong second-home market.
The condominium is the poster child of the real estate boom, especially in the Sunshine State, where hundreds of high-rise condominiums are under construction in South and Central Florida. Developers also have been buying apartment complexes and selling the units as condominium homes. Hotels in prime beach areas have converted to the condo-hotel hybrid, and ritzy condo-hotels are under construction.
But the conversion of small motels is just starting to catch on. Real estate onlookers say the Tampa Bay area, where a handful of such condos are for sale, seems to be leading the pack. But why? Wouldn't it be more profitable for a developer to bulldoze and start over? Who would want to buy a motel room, and is it a good investment or a money pit?
It could be both, said Jack McCabe, of McCabe Research and Consulting in Deerfield Beach, which tracks real estate values and trends in Florida.
CONDO GLOSSARY
Condo-Motel: Investors buy motel rooms, typically in as-is condition, and must offer them for rent at least 10 months a year. Owners pay association fees, which help pay for property insurance and maintenance for the building. Owners also may renovate their units.
Condo-Hotel: Investors buy units in either a new building or a converted hotel and are required to offer the units for rent most of the year. Some offer full-time condo residences. The association is responsible for property insurance for hotel room owners, similar to condo motels.
Condo Conversions: Units in a former apartment building are sold to full-time residents or investors who rent them out. Developers generally upgrade the property, adding amenities to entice buyers. Owners are responsible for their own property insurance and pay association fees for building maintenance.
"What you're seeing in Tampa Bay may be the first time we've seen this in the country," McCabe said. "It's a great opportunity to own a piece of Florida waterfront for a lot cheaper than a typical condominium. And it's almost like you have a ready supply of clientele because people have come to these motels on vacation for years.
"The one word of caution is that anybody who buys hotel rooms for investment thinking they'll get a large return are generally disappointed."
Here Are The Terms
The condo-hotel or condo-motel hybrid works this way: Rooms are sold individually, and the building continues to operate as a hotel or motel. The developers typically allow owners to use their rooms for 30 to 60 days a year and have access to amenities such as the room service and housekeeping. The unit is available for rent the rest of the time, and the owner gets a percentage, typically 30 percent to 60 percent of the rental fee.
Lowe, who is selling units in the 47-room Best Value Tarpon Inn, across from a bayou in Tarpon Springs, says the investment potential is great. Rooms now rent for $45 to $75 a night and are occupied 70 percent of the time, he said.
Lowe is selling most rooms as they are - with peeling paint, musty carpet and old furnishings - for $119,000 to $149,000. He is renovating others to show their potential. The units range from 286 to 550 square feet, and some have kitchenettes.
There are no other condo-motels in that area for comparison, but Lowe hopes investors who can't afford beachfront condo-hotels will turn to his development.
For example, a 286-square-foot room at the Best Value Tarpon Inn is selling for $119,000. It has a minifridge and a microwave. A 398-square-foot unit at the Bilmar Beach Resort Condo Hotel on Treasure Island costs $330,000. It comes with a view of the Gulf of Mexico, a kitchenette with a full-size refrigerator and granite countertops, and a flat-screen television mounted to the wall.
Condo-motel owners are required to do minimal improvements, such as changing out carpet, adding tile and new furniture. He estimates most people will spend less than $5,000 to spruce up their room and can save money by doing the work themselves.
The renovated rooms will rent for $125 to $150 a night, two to three times today's rate. If a room rents for $100 for 200 nights a year, Lowe figures an owner stands to make $20,000 of gross revenue.
Ten potential buyers have each plunked down $5,000 deposits to reserve a room.
Something For Everyone
Chris Teall, a Tarpon Springs resident, has reservations to buy two of Lowe's rooms for $149,000 apiece.
"When it became known to me the rooms were available, I went down the same day and bought two," Teall said.
Teall thinks he will make a healthy return when he sells the rooms. For now, though, he will use at least one of the rooms for vacationing relatives.
"While they're not full-size condominiums, they are a great opportunity to get out of town for an extended period of time," Teall said. "This is offering some lower-end investors a chance to get in on the condo craze."
Wit Tuttle, spokesman of the St. Petersburg/Clearwater Area Convention & Visitors Bureau, sees another potential for condo-motels - much-needed space that is affordable.
At least 4,000 hotel and motel rooms have disappeared in Pinellas County in the past few years. More than 65 condo and hotel projects are planned for Clearwater Beach alone, Tuttle said, but most of the rental rooms are expected to go for hundreds of dollars a night.
Most of the small motels along the beach are either gone, closed or for sale, he said. Longtime tourists complain that they can't find an affordable place to stay, he said, and some tour companies have stopped arranging trips for foreign visitors to Pinellas County.
"I hope this is a way to keep some midpriced product on the beach, as opposed to turning all the motels into residential condos," Tuttle said. "It's very important not just for the economics of the community, but for tourism. Many of the tourists who come here can't afford $400 a night for a hotel room."
What's Best For Tourism?
But Byron Moger, of the commercial real estate firm Cushman & Wakefield, doesn't see it that way. Luxury condo-hotels make a lot of sense for hotel developers, he said, because the individual condo owners share in the development's risk.
That's one of the reasons Clearwater Beach is becoming a mecca for condo-hotels, Moger said.
He doesn't see the advantage of matching the condo hybrid model with a regular motel. It's possible, he said, depending on the motel's location, that selling rooms might make a developer more money than selling the property as a whole. But as for affordable lodging, "there's no need for it on the waterfront."
"The richer the hotel accommodations, the better, as far as I'm concerned," Moger said. "It just makes for a better place."
Travel Resort Services Inc. in Redington Beach, manages 700 condo-hotel rooms in the Clearwater-St. Petersburg area and will have 2,000 units by the end of the year, said Steven Rodriguez, with the company.
The condo-motel is new, he said, but he expects to see more such conversions. The company has one condo-motel, the 61-unit Pelican Pointe, in Clearwater Beach but the developer redesigned the interiors and made rooms into suites with sofa sleepers and kitchenettes.
"I think this trend is good for everybody," Rodriguez said. "It's very difficult for motel owners to keep their properties, but it would be detrimental to our tourism industry if we build only condos and lose our rental units."
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