This week I had two customers inquiring about condo hotel (condotel) units for sale. Both customers are investors, hoping to take advantage of lower prices in Hawaii's weak real estate market.
We looked at several condotel buildings and the buyers decided on the Ala Moana Hotel Condo. This is one of the highest-quality condotels around. In the $100k price range, it is hands down the best.
The economic climate for condotels has changed dramatically recently
Here's what we learned as we looked at condotel listings.
These days, lenders are very conservative. There are just a handful of lenders that will make a loan for a condotel unit and those who do will typically require a 40% downpayment!
When room occupancy rates were high and loans were easy to get, prices were higher and investors could get a return on their investment. The Ala Moana Hotel Condo has suffered significant price declines. Units are selling for about 50- 60% of what their owners bought them for a couple of years ago. What happened?
1) Maintenance fees have risen. In late 2005, the 246 square foot units had $386 monthly maintenance fees. Now those units have fees in the $456 - $630 range. Causes for the fee increases include oil prices, which affect electricity costs, and budget revisions to keep the reserve fund at adequate levels.
2) In good times, occupancy rates were 80-90%. These days (May 2009), Ala Moana Hotel Condo is running around 30-40% occupancy. The recession is affecting travel to Hawaii and these unit owners are seeing their monthly revenue fall.
The Bottom Line for Ala Moana Hotel Condo Buyers
If you're planning to get a loan and buy here, do not expect to have positive cashflow on a monthly basis. In time, occupancy levels will rise and revenue will increase which may result in positive returns.
If you're a cash buyer, your unit can probably break even on cash flow for now.
These days, many investors are selling off assets and moving to cash. When the economy turns around and lending standards change, properties like the Ala Moana Hotel Condo will be more appealing and prices will most likely rise. Personally, I think prices will rise QUICKLY as the economy recovers. Just take a look at what happened in the period after 9/11! We had steady growth for about five years.
Looking for other buying opportunities? Contact Mike and tell us what you're looking for. We'll search the Oahu MLS listings and show you where the price declines are!
Aloha, Mike Bates
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