Mr. Schirmer

Condo Hotels

Effectively Managing FF&E for Condo Hotels

By Cary Tyler Schirmer, Chief Executive Officer, The Higgins Group

Condo-hotels, also known as condotels and apartotels, are taking the hotel industry by storm. Initially made popular in the Miami area throughout the 1980s, these residences are back in a big way, allowing biggest names in luxury hotel brands to create a whole new real estate market. By uniting the public's desire to invest in real estate with the travel industry's quest for new properties, the condo hotel has reinvigorated the hotel construction business, altering the skylines of gateway cities from San Francisco and Las Vegas to Boston and New York.

These residences are typically high-rise, luxury properties in outstanding locations associated with well-known names in the hotel industry such as Ritz Carlton, Hilton, Starwood, Trump and Sonesta. They offer a great opportunity for a hotel to leverage and extend their brand into a luxury residence, where buyers can enjoy all the amenities of staying in a hotel, with the added benefit of owning a piece of the real estate. Most condo-hotels feature incredible amenities and guest services of four-star caliber or better, including full-service spas, work-out facilities, room service, housekeeping services, resort-style pools, restaurants and access to concierge services.

Mixed use residences like this come in many flavors: condo hotels, residential clubs, timeshares, and fractional resorts are all elements of this booming trend that's impacting the hotel, luxury travel and vacation industries. Those managing the procurement of FF & E are presented with a unique challenge of understanding what these types of residences are, the various needs of each, and the current trends in the industry.

Here is what hotel executives need to know to maximize their investments for each type of mixed use residence:

Unlike time shares, where owners have the right to visit a property for a few weeks a year, or traditional condominiums, where individuals own the units and can do what they want with them, condo-hotels are a hybrid. It's a condominium with hotel-like features and amenities (F&B, spa, concierge, etc.). Condo owners place their units into a rental pool, which is managed by a hotel company. Investors own a specific condo and pay property taxes, insurance, and maintenance fees. Hotel management companies rent out the rooms, rotating reservations among the various units and splitting the revenue fifty-fifty with the owners. In many cases, the hotel company will also own some units. The customer experience is typical of a luxury hotel, but with larger units.

What you should know:

  • Because condo-hotels are designed to extend the brand of the associated hotel, it pays to hire a purchasing manager with existing relationships to buy FF&E for both types of properties. That way, they are able to leverage existing relationships to get the best bulk pricing on furniture, linens, and other amenities.

  • At condo-hotels, similar to hotels, many amenities, like linens and towels, are purchased in case packs. It's best to order enough case packs to keep things operational but not over-order so that you would need to warehouse the rest (extra spend and logistical hassle). When it is time to reorder, establish a good relationship with one vendor so that you can eliminate any inconsistencies with the quality and look of your product.

Private Residence Club (PRC):
Typically deeded membership at specific residential developments, which are often considered second home alternatives. Ritz Carlton and Four Seasons are considered residence clubs, because members have a whole ownership interest at a specific property and then submit their unit into a rental pool with exchange rights between other units within the brand.

A number of individuals share ownership in a timeshare property. They are typically found in popular vacation areas, whether it be by the beach or a ski resort. Timeshare properties are much more than simple hotel rooms and almost always fully furnished and include one to three bedrooms, multiple bathrooms, full kitchen, and a living room. The typical timeshare unit ownership is one week and is very similar to that of a condominium except that your ownership is limited to a certain week (or weeks, if you purchase multiple intervals) during the year.

What you should know:

  • A timeshare, although it's considered a condominium -functions in the purchasing area, much like a hotel. All units are generally purchased at the same time, and are sold furnished.

  • Keep in mind that timeshares sometimes require that furnishings be replenished regularly, so FF&E managers should keep this in mind when putting their long term purchasing plans together.

Fractional resorts:
A relatively new concept that allows an individual to enjoy up to three months of home ownership privileges at a top-of-the-line, luxury resort at a fraction of the cost of whole ownership. This type of real estate allows for versatility when selling off 3-week fractional increments for a certain number of units.

What you should know:

  • Because fractionals give purchasers the ability to travel back and forth between several property locations, you definitely want to be attentive to keeping a consistent look and feel for each property you manage - this means same bed sheets, linens, towels, furnishings throughout so that your customers experience the luxury brand you've established wherever they go.

Now on the upswing again, condo-hotel development shows no signs of stopping. Of the roughly 377,000 hotel rooms currently under development in the U.S., 30,500 are condo-hotel units. An additional 70,000 are private residences within hotels that are not designed to be rented out on a nightly basis, according to Lodging Econometrics, a research firm that collects hotel construction data. Also, the rise in the vacation ownership industry has been sensational. Sales have been growing at a compound annual rate of more than 17% for the past decade. In 2002, high-end and Private Residence Clubs accounted for $360 million in revenue, a growth of $198 million in just four years. In 2003, timeshare resorts reported occupancy rates averaging above 85% while occupancy rates at traditional hotels were significantly lower.

For the savvy hotel executive, it pays to know what elements go into these new types of mixed-residences, how to manage FF&E efficiently and effectively, and how to leverage existing business practices to succeed.

Cary Schirmer is CEO of The Higgins Group.He is responsible for long-term planning and oversees operations for both Higgins Purchasing Group and Boxport. Mr. Schirmer forges partnerships with clients' teams to negotiate contracts, settle legal issues, streamline accounting systems and acquire relevant technologies. Mr. Schirmer is committed to educating clients on supply chain issues and the improvement of daily operations. He also works closely with his team to promote growth of THG within the industry. Mr. Schirmer is a graduate of the University of California at Santa Barbara. Mr. Schirmer can be contacted at 415-772-1600 or cschirmer@higginspurchasing.com Extended Bio...

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