units as transient lodging accommodations.
This kind of condominium hotel features the
public space, amenities and level of finishes
consistent with a hotel operated by the
affiliated brand.
Regardless of the physical appearance or
operating structure, condominium hotels are
often considered attractive to developers,
lodging operators and unit owners alike.
In markets where traditional construction
lending was limited, the presale of units had
allowed developers to obtain construction
financing, aligning themselves with a
hotel operator to gain pricing premiums
on unit sales. Lodging operators benefited
from new inventory under management
and potentially earning a licensing fee on
the sale of the units. Unit owners often
purchased units assuming that values would
continue to appreciate and that the income
generated from their revenue split would
cover their costs of ownership.
With the global economic decline, however,
many condominium hotels, particularly
those located in the US, have faced
litigation, restructuring or bankruptcy,
mostly due to issues surrounding control,
income allocation and securities issues. At
the core of the complexity has been the
applicability of securities laws to the offering
of condominium hotel units.
The US Securities and Exchange Commission
(SEC), in a 1973 release (SEC Release 33-
5347) and in subsequent no-action letters,
has addressed the issue of when the sale
of condominium units constitutes the sale
of a “security.” In brief, the SEC’s guidance
prohibits (a) the pooling of income, (b)
emphasis of the investment aspects of the
condominium and (c) restrictions on use
of the condominium (such as a mandatory
rental program). This issue affected projects
targeting both US buyers, a major source
of global investment in second-home real
estate, and international buyers, who,
familiar with the concept back home, faced
additional complexity and risk.
units as transient lodging accommodations. This kind of condominium hotel features the public space, amenities and level of finishes consistent with a hotel operated by the affiliated brand.Regardless of the physical appearance or operating structure, condominium hotels are often considered attractive to developers, lodging operators and unit owners alike. In markets where traditional construction lending was limited, the presale of units had allowed developers to obtain construction financing, aligning themselves with a hotel operator to gain pricing premiums on unit sales. Lodging operators benefited from new inventory under management and potentially earning a licensing fee on the sale of the units. Unit owners often purchased units assuming that values would continue to appreciate and that the income generated from their revenue split would cover their costs of ownership. With the global economic decline, however, many condominium hotels, particularly those located in the US, have faced litigation, restructuring or bankruptcy, mostly due to issues surrounding control, income allocation and securities issues. At the core of the complexity has been the applicability of securities laws to the offering of condominium hotel units. The US Securities and Exchange Commission (SEC), in a 1973 release (SEC Release 33-5347) and in subsequent no-action letters, has addressed the issue of when the sale of condominium units constitutes the sale of a “security.” In brief, the SEC’s guidance prohibits (a) the pooling of income, (b) emphasis of the investment aspects of the condominium and (c) restrictions on use of the condominium (such as a mandatory rental program). This issue affected projects targeting both US buyers, a major source of global investment in second-home real estate, and international buyers, who, familiar with the concept back home, faced additional complexity and risk.
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