Owning a home in a vacation destination is a dream for many people. However, the high costs and burden of maintaining a property far from their primary residence can be a barrier to the dream-come-true lifestyle.
That’s where partnerships between real estate companies and a luxury hotel or resort can come into play. We’re not talking about basic timeshare programs where you buy into a package that gives you access to a few weeks a year at one (or various) properties. This is bigger than all that.
This is a financial investment that can reap great returns if handled properly, provided the buyer puts in the time upfront to do substantial research. Hotels are looking to cash in on this opportunity, too. It makes a lot of sense for hotel developers to secure ample funds at the beginning of new construction to support new-build projects or additional investment.
High net worth individuals, who may already have plenty of diversification in their investment portfolio, are turning to real estate options in collaboration with luxury hotel brands for the added variety (and perks) they offer. These are residences sold as luxury abodes attached to major hotel and resort brand properties and featuring the amenities that come with.
There is a certain cachet that comes with owning a second (or third, or fourth) home that is part of Ritz-Carlton or St. Regis, for example. Developers know this and seek out the brand (and often a celebrity architect or designer) they believe best fits with the market and the potential price point they look for from investors.
Around the world these investment opportunities are proliferating. If you’re looking to put your hard-earned money into luxury real estate that carries high-end hotel prestige – whether it’s for the travel opportunities it can encourage, or the ability to earn extra income through a hotel’s rental pool – there are plenty to consider.
How It Usually Works
These large mixed-use resorts consist of both traditional hotel rooms plus condominiums or residential units that can be purchased outright (think villas and multi-bedroom homes). Owners have the ability to use them, usually whenever they wish (based upon if they own it outright or have chosen a fractional ownership) along with the accompanying amenities and facilities of the hotel or resort.
When they are not using them, they can choose to place them into a rental pool that allows the hotel to sell them in the same way they would sell a room or suite night. The owner and the hotel split the revenue earned from the rental of the vacation home, which helps owners to offset their own costs while giving hotels bonus revenue and additional room types.
The percentage split varies depending upon the project and location and can be the make-or-break number that affects whether this concept works for some people. We’ll get to that later.
Not all residences have to be put into the rental pool though. At the soon-to-open Pendry West Hollywood, guests can enjoy all the amenities of the hotel without having to share their home with others. While this might take away some potential rental income, not everyone likes having outsiders using their second home.
When units are put into the rental pool, typically, the hotel’s housekeeping team cleans during and between visits to keep things as immaculate as the rest of the hotel. This means owners don’t have to be involved in the day-to-day operations of their investment when they are away from the property.
There’s also no need to worry about maintenance or upkeep issues as those are handled by the hotel, although owners share those costs. As for initial construction costs, those are all handled by the developer so investors don’t need to monitor every stage of construction either. It’s sort of a readymade real estate investment that just requires your cold hard cash.
All Things Considered
Developers know demand for these types of properties is often high, given their attachment to a luxury resort and the ability to use all of its associated amenities. This means they can often be priced at a premium. Experts tout the fact that these kinds of properties appreciate faster than an independent residence might, as well.
Not everyone will find full ownership their personal style. But if you’re looking into fractional ownership, it’s especially important to understand the terms before buying to determine whether there are restrictions on when you can use the property. Obviously, demand surges during holidays and ideal weather seasons.
According to Matt McDonald, managing director of Pronet Capital, LLC, the company managing the new Andaz Turks and Caicos project, the strength of a market as a vacation destination is an important consideration, too. For example, is it easy and affordable for people to get there? Are there regular flights that are convenient from your home airport (or connecting options)?
This can affect both your own access to your vacation home as well as those of potential renters that should factor into your economic investment decision. Island destinations are particularly prone to this potential drawback. Many have limited seasonal flights or only from certain hub airports.
McDonald says in the Caribbean, that means most investors (and potential rental customers) hail from the Midwest and East Coast since it is easier to fly there. On the other hand, in Hawaii it’s the West Coast that contributes a substantial amount of visitor traffic because of flight convenience.
Referring to his latest project with Andaz in the Turks and Caicos, McDonald says it is a strong market for investment appreciation and income return. Average island occupancy is 62 percent with an average nightly rental rate of $1,050, which gives the condo buyers an above-market return.
“In addition to the high average nightly rental rate, our buyers also factor in how much it costs for a two-week vacation each year to the islands,” says McDonald. “For a family of four that could cost about $40,000 per year, which buyers are using in their return analysis.”
There are other perks that can sweeten the deal, too. These are often necessary for projects where there is a lot of lead time where an investment is due, but guests don’t have access to their vacation residence for several years. Again, the Andaz Turks & Caicos is an example.
Eventually, the project will deliver exquisite beachfront views, a full roster of resort amenities, and even the promise of earning World of Hyatt points for onsite expenses. Still, McDonald took things a step further, giving investors World of Hyatt elite status with their initial investment. This gives investors an immediate benefit long before their vacation home was ready to enjoy.
A Fraction of the Cost
One of the major benefits of these investments are the onsite amenities. Developments like Mayakoba in Mexico pack four resorts into one address, which can make it popular as an investment. To own a piece of paradise, travelers can buy into Fairmont Residences, which recently added three new buildings to Fairmont Heritage Place.
Investors have the option to be a full owner or take fractional ownership (where you split the costs of owning it with other investors) of these three and four-bedroom condos, making this type of real estate investment accessible to more people.
Fairmont guests and owners enjoy amenities at all four Mayakoba resorts (Andaz, Banyan Tree, Fairmont, and Rosewood). Why buy into one resort when you can get access to four delivering 25 restaurants, four beach clubs and pools, four spas, and a PGA Championship golf course?
Rosewood has full homes available for investment with starting prices at a mere $3.3 million. In comparison, a fractional Fairmont Residence (split 12 ways with other investors) starts at $219,000. Another perk of fractional ownership with Fairmont is members can exchange their allotted vacation time with other similar Fairmont properties around the world.
Hawaii is another popular market for this type of investment. Vacationers that want the spacious accommodations and flexibility of a residence find this makes perfect sense. Since they come with kitchens, dining rooms and multiple bedrooms, they offer more space than traditional hotel rooms while still delivering the same range of amenities.
Fractional ownership at The Diamond Head Club located at the Ritz-Carlton Residences on Waikiki Beach starts at $750,000. That’s for a penthouse residence valued at $10 million.
This concept is not for everyone. But for those who appreciate flexibility, the chance to own their own vacation residence, and the potential to recoup and grow their initial outlay, luxury hotels and real estate investment can make dreams come true.