Condominium Hotel (Condotel)

I am presenting here a sample of a condominium-hotel (condotel) concept to give readers information about owning a condotel in Philippines.

1.      What is a condotel?

A condotel (short for Condominium Hotel) is a condominium project which offers unit owners the opportunity to earn by placing their units in a rental management program that is operated like a commercial hotel. All units enrolled will be managed by a condotel operator, who shall be responsible for  the over-all hotel operations including front office, general housekeeping and maintenance, food and beverage operation and concierge services.

2.      How can a unit owner earn from the rental management program?

• Upon enrolment of a unit in the rental management program, it becomes part of a pool of units to be rented out on a daily, weekly or monthly basis, from which unit owners will receive a percentage of the room revenues.

3.   What is meant by a Leaseback Program in a condotel?

• The rental management program is called the Leaseback Program, wherein, for example, 30% of gross revenues from the hotel rooms are distributed among the unit owners, and 70% goes to the operator to cover for management fees, housekeeping, maintenance and utilities and general operating overhead.
• Initial mandatory enrollment contract for the Leaseback Program shall be for five (5) years subject to renewal every five years thereafter. Room owners have the option to live in their units after the initial five (5)-year term subject to rules, regulations and deed of restrictions of the Hotel.
• Direct leasing of rooms by unit owners is not permitted under this program.

4. What are the advantages of owning a condotel Room?

• Investment return of as much as 8% per annum based on current hotel rates, without the hassle of being a landlord.
• Continuous income whether your unit is actually rented out or not because of the proportionate distribution of income from rental pooling of hotel rooms.
• Full ownership of the purchased hotel room unit as evidenced by a Condominium Certificate of Title while enjoying the benefits of deluxe hotel service and facilities.
• Free use of hotel room unit for 24 days a year.
• Worry-free upkeep of the unit without paying for the typical Association Dues or Maintenance Fees since these will be shouldered by the hotel operator.
• Appreciation in value due to its location, excellent upkeep of units and over-all master development plan of the entire property.

5. Who will handle the hotel operation and leaseback program implementation?

•  The operation of a hotel is handled by  a reputable hotel management company with the necessary professional management and track record in hotel marketing and operations.   Having a reputable hotel operator, room owners are assured of efficient marketing and rental of their units, excellent upkeep and maintenance and continuous improvement of all amenities and facilities.

6. Can an owner use his  room even if it is enrolled in the Leaseback Program?

•  Yes. A hotel room owner can enjoy a total of 24 days usage of the unit each year, subject to room availability. Three (3) weeks advance notice will be required by the hotel operator to properly manage the booking.
•  Should the hotel room owner wish to use his unit more than the allowed number of days in a year, the unit owner will have to pay the regular room rates, which shall be included in the computation of its share of room revenues.
•  If the hotel room owner was not able to utilize his usage privileges within a year, the unit shall continue to generate income as part of the rental program.

7.   What are the general guidelines on the implementation of the  Leaseback Program?

•  Buyer who has paid at least 50% of the Total Selling Price will start getting its share of the revenues from the Leaseback Program. Pro-rated monthly revenue, based on the percentage of payment the buyer has made, shall be paid to the hotel room owner in the form of checques. Revenue from the Leaseback Program cannot be applied directly to offset partially or wholly the owner’s monthly amortization for his unit.  Revenue for the month will be forfeited if buyer fails to pay his amortization on time.
•  The minimum period a unit owner can have his hotel room enrolled in the Leaseback Program is five (5) years.
• Hotel room owners who have utilized their room to live in after the mandatory initial 5-year enrollment but decided afterwards to re-enroll their rooms in the program may still be allowed to join, but are subject to Hotel Operator’s approval. A certain amount, depending on the room’s condition, will be collected from unit owner to cover the refurbishing.
•  Upon termination of the initial mandatory 5-year Leaseback Agreement, hotel rooms will be turned-over by the Hotel Operator to the owner. Henceforth, the room owner shall start paying for the monthly association dues to the Hotel Operator.
•  A unit owner who decides not to re-enroll his hotel room unit under the Leaseback Program will be charged with pre-determined monthly association dues and maintenance fees payable to the Hotel Operator. The monthly association dues is estimated to cost around P100.00 per square meter based on the room’s  floor area, which is P3,200.00 for a typical 32-sq.m. hotel room.

 8.      Can you illustrate how hotel room owner will earn under the Leaseback Program?

 

Premium Room (35-sqm) – Local Resident’s Rate: P5,000
Corporate Rate	P 3,850
Current Room Rate (Net of  VAT & SC)	P 3,155
30% Share on Room Revenue	P 946.50
Occupancy Rate	50%	80%
Annual Income	P 172,736.25	P 276,378
Average Monthly Income	P 14,394.69	P22,948.17
Free 24 days stay per yearP3,850 x 24 Days	P92,400	P92,400
Investment (Cash Selling Price = Term    Selling Price net of 10% Discount)	P3,510,000	P3,510,000
Total Annual Return on Investment
Annual Income + 24 days free useof hotel room	P265,136.25	P368,778
Annual Return on Investment (ROI)	7.5 %	10.5 %

Notes:

1)    Room Rate = Regular room rate net of VAT and Service Charge

2)    Annual Income = 365 days x P946.50 x Occupancy Rate

3)    Annual ROI = Annual Income + Value of 24 Free Room Nights / Investment

4)    Hotel room owner has to fully pay the unit to get the full 30% revenue share

5)    Projected revenues are indicative amount for presentation purposes only, and are not guaranteed by the hotel operator.