For a Condo Hotel, Try South Beach Bend

IN the last few years, condo hotels have emerged as a tempting choice for vacation-home buyers. The opportunity is hard to resist: when you’re not lounging in your plush suite, enjoying all the amenities of a hotel, you can put it in a rental pool and share in the proceeds. And you may also see your property appreciate sharply over time.

WATER, WATER Brokers say they believe that the right kind of condo hotel, even in an oversupplied market like Las Vegas, can still sell. Above, the Residences at MGM Grand on the Strip.

But if that promise hasn’t quite lived up to recent expectations in some established condo-hotel locales — most notably Florida, where the market has faltered — it has found new life elsewhere.

When Jerry McKenna, a sculptor from Boerne, Tex., decided to buy into the condo-hotel concept, he wasn’t thinking South Beach. He was thinking South Bend.

A proud Notre Dame alumnus and regular football game attendee, Mr. McKenna was looking for an alternative to paying for hotel rooms, which can run as high as 0 a night with a three-night minimum on game weekends, or buying a house near the campus and worrying about the upkeep. When he learned about the Waterford Estates Lodge, a 200-unit condo hotel being fashioned from a former Ramada Inn a few minutes north of the campus, he thought it would be a good fit. It offered all the amenities a hotel guest and Notre Dame booster would ever want, including an Irish pub, without the household chores associated with second-home ownership.

“I came back to Texas and described it to my wife, and she said, ‘We ought to look into that,’ ” Mr. McKenna recalled, noting that the price was right: 9,000 for an extra-large studio, plus maintenance fees and taxes just above 0 a month. And that does not factor in the possible financial return. “The fact there was some income to be derived when we weren’t there was a pretty good incentive,” Mr. McKenna added.

HIS story is hardly an isolated example. Other second- or even third-tier destinations are playing an increasingly important role for condo-hotel developers. Some are niche locales that aim for buyers with particular interests, like attending college football games or playing slots in a waterfront-area casino (a condo hotel is planned for Biloxi, Miss.). Others are family-oriented drive-to vacation areas, like the Wisconsin Dells, northwestern New Jersey, Pigeon Forge, Tenn., or Myrtle Beach, S.C.

And still others are not really second tier, but they do not fit the fun-in-the-sun profile of earlier condo-hotel markets. New York, for example, is now home to many condo-hotel projects, including the Plaza Hotel’s new Pied-à-Terre residences, where units can go as high as million.

In many ways, this second wave of condo hotels is simply catching up with the first markets, industry experts say.

South Florida was a natural place for the boom to start. The area has always been politically friendly to developers, and until recently, it has proved a gold mine for real-estate speculators.

But demand has fallen there and in other more established condo-hotel markets, like Orlando and Las Vegas. In those locales, where prices for prime units can easily top million, several projects have been scrapped and sales have stalled at others. For example, Robert Falor, a condo-hotel developer, has seen one of his biggest South Florida projects, the combined Breakwater and Edison hotels in Miami Beach, go into bankruptcy in the last year.

Combine that market slump with concerns about possible lawsuits in established markets from dissatisfied condo-hotel owners, who have not seen the occupancy rates nor the appreciation they anticipated, and it raises the question of whether this is the right sort of real estate to consider in second-tier cities.

Buyers cannot expect the same annual occupancy or average nightly rental rates in South Bend (where the numbers respectively equate to 53 percent and , according to Waterford’s developer, Mike Brenan) as in South Beach or Miami Beach overall (71.5 percent and 3.96, according to the Greater Miami Convention and Visitors Bureau).