development

 

Condo-tels
Adding Rooms On The Mississippi Gulf Coast
By Lance Davis
A hybrid that is taking root on the Mississippi Gulf Coast is expected to increase the number of rooms available for tourists.

Condo-tels, a cross between a condominium and a hotel, have been around for about 10 years, according to the real estate blog Bigpockets.com. But the idea is new to the Mississippi Gulf Coast and is quickly becoming the lodging development of choice for casino and real estate developers in Harrison County.

“I predict that in the next three years there will be a strong push for condo-tel development on the coast,” said Mike Boudreaux, owner and president of Gulf Coast Investment Development Inc.

At first glance, a passer-by probably could not distinguish a condo-tel from a hotel. They offer the same amenities, such as a concierge service, 24-hour on site check-in, transportation, 24-hour security, valet parking, restaurants, spas, fitness centers and retail shopping. Like a hotel, furnishings are usually identical in each unit.

But they differ from traditional condominiums in that they are not marketed as a primary or secondary residence. Condo-tel owners typically only have access to their property for one or two weeks each year. The rest of the time they are rented on a nightly basis.

Condo-tels are also smaller than traditional condos. The average condo-tel unit is 500 to 850 square feet, has one or two bedrooms and a sofa bed, and can easily accommodate two families. Because they are smaller, they also offer a lower price point for interested investors.

It’s these reasons, and the fact that condo-tels continuously stay in the rental pool, that make them attractive to buyers and developers, said Ray Wooldridge, the owner and president of RW Development Inc. of Biloxi.

Wooldridge—perhaps best known as the co-owner of the New Orleans Hornets NBA franchise—is among a number of developers building condo-tels on the Mississippi Gulf Coast. His company is finishing construction on South Beach Tower One in Biloxi on U.S. Hwy. 90 near Rodenberg Street.

South Beach Tower One will offer six floor plans: studio, studio deluxe, one bedroom, one bedroom deluxe, one bedroom deluxe with studio, and two bedroom.

It is the first link in Wooldridge’s plan to re-create a portion of Biloxi that was destroyed by Hurricane Katrina. The total South Beach project will include a casino, branded hotel, four condominium towers, apartments, and retail and commercial space that will stretch from Rodenberg to Veterans Boulevard.

Wooldridge describes the condo-tels as the “wave of the future” on the gulf coast because they will provide amenities that can’t normally be included in traditional condominiums. “I believe they are more attractive for buyers. You have security on site looking after your investment, the fact that they stay in the rental pool means you’re getting revenue from it, and they are a very viable alternative to traditional condominiums,” Wooldridge said.

Boudreaux, an Ocean Springs, Miss., native has been developing properties on the gulf coast for nine years. His focus is primarily on casinos and condominiums. He claims the shortage in lodging left in the aftermath of Hurricane Katrina is fueling the need for condo-tels.

In the months leading up to the Aug. 29, 2005, storm, the Mississippi Gulf Coast boasted 17,000 hotel and motel rooms. But almost three years after the deadly storm there are little more than 4,000 rooms available, and that number includes condo rental units, according to the Mississippi Gulf Coast Convention and Visitors Bureau.

But Katrina did not stop tourists from flocking to the area. A survey conducted for the bureau by Northridge, Calif.-based Transportation Travel and Hospitality showed that 3.5 million visitors came to the Mississippi Gulf Coast in 2006.

Though a similar study has not been conducted since then, bureau officials believe the number of visitors to the coast is increasing. To handle the numbers, the bureau claims an additional 30,000 rooms will be needed. “And we know it will take some condo-tel development to do that,” said MGCCVB Media Relations Manager Janice Jones.

The Mississippi Gulf Coast is already the number three gaming destination in the United States, behind Las Vegas and Atlantic City, said Boudreaux, and the only thing keeping it in third place is the lack of rooms.

And that’s why, despite the damage caused by Katrina, real estate developers are finding a silver lining in the storm’s wake. “There’s an opportunity that came out of Katrina. It provided a lot of raw land and took out a lot of blighted land. And what replaces that will be new, and people will see that and be attracted back to the water front,” Boudreaux said.

Wooldridge also cited the Gulf Opportunity Zone Act, or GO Zone, as a driving force behind new developments along the Gulf Coast.

President George Bush signed GO Zone into law on Dec. 21, 2005. The law offers economic incentives along the Alabama, Mississippi and Louisiana coasts similar to those included in the New York Liberty Zone created for parts of Manhattan after the 9-11 terrorist attacks.

Of interest to condominium owners is an incentive included in the GO Zone that allows a 50 percent first-year bonus depreciation on residential rental property. To qualify for the incentive the property must be new to the owner, its original use must begin with the purchaser, the use of the property must be in an active trade or business conducted by the purchaser within the GO Zone, and it must be placed in service before Dec. 31, 2010.

If these requirements are met, the purchaser of a condo inside the GO Zone can take a 50 percent depreciation deduction in the first year plus the normal annual depreciable. “It has certainly been a significant incentive to bring recovery to this area,” Wooldridge said.

Developers are also looking at condo-tels because of the Mississippi Legislature’s decision after Katrina to allow casinos to locate on land. Before the storm, casinos were relegated to barges moored to the shoreline. Only their hotels and support facilities were allowed on shore.

Now that they are allowed on land, Boudreaux said casino developers could plan larger, more opulent resorts, many of which will include condo-tels.

And in a market starved for rooms, Boudreaux said casinos often need condo-tels to handle their hotels’ overflow. “The gulf coast is a venue for the driving tourists. Unlike the Alabama and Florida coasts that have a cyclical tourist season, the Mississippi Gulf Coast has 12 months of opportunity for a person to come in for something other than the beach and water.

“You do have the gambling aspect, but also the entertainment venues, restaurants and some of the best golfing in the United States. You also have the convention industry, which is broadening its scope in this area, and so there is a need for the condo-tels to fill in and handle the overflow.”

Not only that, but condo-tels offer lodging to visitors who dont want to stay in a casino or for those looking for activities that don’t involve gaming.

“We have a great climate here and a lot of activities that go along with that. Some families just don‘t want to stay at a casino,” Wooldridge said. “And condo-tels are one way to get other attractions here.”

But in the long run, perhaps the greatest incentive for developers and investors is that condo-tels are more cost effective to build than hotels, Boudreaux said.

As opposed to a hotel, where one company or a limited partnership may assume all the risk in paying for the building, the expense of a 300-unit condo-tel may be shared by 300 individual owners.

Boudreaux is also involved in a casino development that will include a condo-tel. Though the Roma casino and resort is still in the planning and design stages, Boudreaux said he and his partners are adamant on including a condo-tel.

He said he believes the condo-tel concept, with its added amenities, lower price point, lower risk and GO Zone incentives, is too attractive for developers and investors to pass up.

“I would think that all new casinos are going to look for opportunities to build condo-tels because they can build on land now, because the cost associated with them can be spread out, and because it provides an immediate market for their venues,” Boudreaux said.