Goodbye 2008, Hello 2009?

If the global financial panic of 2008 hit the real estate community hard, it had an even more devastating impact upon the condo hotel industry. Thankfully 2008 is past. But with it, is the panic gone too? What does 2009 hold for the condo hotel industry?

Recent data suggests that there is a large amount of unsold condo hotel units on the market—both in construction and in deliverable form. There are many reasons for this, most notably the lack of financing for not just the consumer but also for the developer. With a lack of confidence, comes a lack of money. Many consumers who purchased condo hotels to flip them ran smack into the collapse of the housing bubble, and smack into foreclosure. Even owners who purchased for the long term are walking away from forfeitable deposits because or the collapse of value and the difficulty of finding financing.

The other major reason for the condo hotel bust is that the majority of developments were constructed as un-branded entities and in seasonal or poor locations. Much like the bad timeshare product of the 1970’s and 80’s (before Marriott got involved) these ill-advised developments have helped give condo hotels a bad name.

Yet as we all know, at the time of deepest crisis comes the time of greatest opportunity. And the recent economic downturn has helped purge the majority of those poorly developed early-phase projects. Now, opportunistic investors are searching through the rubble of the real estate bubble and discovering gold.

Failed condo hotel projects present one of the single best buys today for opportunistic investors, whether the investor is buying assets or debt. In fact, the debt on a condo hotel project is particularly attractive as lenders and other capital providers holding debt interests in failed condo hotel projects may be more willing to sell that debt at a deeper discount because of the potential pitfalls and risks involved in ultimately owning the condo hotel project.

And, looking past the few ‘bad apple’ failed condo hotel projects, the majority remains resilient. Especially those in cities such as NY, Las Vegas, Hawaii and San Francisco. A bad economy has forced existing condo hotels to become even more attractive to the owner—such as relaxing HOA restrictions and allowing for stronger, more productive and lucrative third party management companies to rent and maintain their properties.

Panic, greed and forced sales helped create the 2008 financial mess. The keywords for 2009 will be perseverance, courage and smarts. Consumers and developers alike have incredible deals on their hands as long as they understand the condo hotel business, research the brand and management company, find a unit in a desirable location and remember those three simple keywords.