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Condo-hotels top agenda at city lodging discussions

Abigail Eagye

The Aspen City Council began a discussion about the town’s lodging needs Monday night. The meeting was part of an extended series devoted to topics related to the city’s building moratorium.Boulder-based consultant Greg Hartmann, of HVS International, gave an overview of current industry trends, historical hotel trends in Aspen, and current and potential incentive scenarios for local lodges.The core question at the discussion, as Hartmann presented it, is: “How does Aspen facilitate lodging development without providing a windfall to developers that could spur rampant hotel growth?”Much of the discussion focused on the condominiumization of local lodges. A condominiumized hotel or lodge is allowed to sell rooms to individual investors, rather than operate under a single owner, as traditional lodges do. The council recently approved plans to condominiumize the redeveloped Boomerang Lodge on West Hopkins Avenue – with the stipulation that occupancy by owners is limited to 30 consecutive days and 90 total days per year. Those limits ensure that condominiumized rooms remain part of Aspen’s rental bed base. Still, the format spurred discussion as to whether or not owners would place their units in the lodge’s rental pool voluntarily.According to City Attorney John Worcester, the council may restrict the number of days an owner can use a hotel room, but Colorado law does not allow the city to prohibit condominiumization expressly.Hartmann presented council members with a breakdown of condominiumized hotels in Colorado, Utah and Wyoming, where participation in the hotels’ rental pool is voluntary. In the majority of cases, at least 90 percent of the rooms are included.Locally, Hartmann reported that nearly 100 percent of the rooms are part of the rental pool at the Aspen Square Condominium Hotel, built in 1969; 75 percent of the rooms are part of the pool at the Aspen Alps, built in 1963 and renovated in 1990; and 90 percent are in the pool at the Gant, built in 1973.Condo-hotels were popular throughout the country in the 1970s and ’80s, he said, because they could be used as tax write-offs. In 1986, tax laws changed, and the nation “saw condo-hotels wash away.”Recent years have seen a resurgence of the idea, however, according to Hartmann.One of the drawbacks to condo-hotels is uncertainty over how federal regulations apply to a privately owned condo that is rented out on a nightly basis.According to attorney David Myler – who represents a number of local property owners, including the owners of the Sardy House – the simplified explanation is this:If an owner expects to earn money from the property before reselling it,it’s considered an investment property and is therefore subject to the rules of the Securities and Exchange Commission. If the owner doesn’t expect to turn a profit until reselling the unit, it’s considered real estate and therefore not subject to those rules.Confused?So are buyers, who tend to steer away from properties that might fall under SEC regulations because the rules are unfamiliar, Myler said.”If what you’re selling is determined to be a security instead of real estate, then you’re going to encounter significant expense and practical difficulties in reselling it,” he said. The owners of the Sardy House explored the idea of creating a “registered security” for the property, but they ultimately were thwarted by the lengthy and expensive process.Financial incentivesHartmann gave council members some hypothetical figures regarding the cost of buying land and building hotels, outlining what developers need to make to recoup their costs. His estimate of total development costs ranged from $550,000 per unit for a standard hotel to $1,050,000 for a luxury, ski-in/ski-out unit.He called the higher number “a phenomenal price in the hotel industry” and said that only 10 or 12 hotels in the nation are in that range.At those prices, strictly renting hotel rooms doesn’t foot the bill, he said. Developers could lose from $10 million to $12 million.Condominiumization is one way to offset those losses and make a project financially feasible, he said. Allowing developers to add free-market residential units comprising 25-35 percent of the project is another. Fractionalization is another option.Hartmann suggested that condominiumization and free-market residential units together might not be necessary.”If you’re 100 percent condo-hotel, there’s less likely the need for that piece,” he said.Michael Hoffman, the attorney representing the Boomerang Lodge owners, balked at that idea, however. So did Sunny Vann, the Boomerang’s planner.The condo units “don’t bring the same kind of premium” as the free-market units, Hoffman said.Vann said the issue was one of financing as much as the difference in revenue.The new Boomerang needed its five free-market units in addition to the condominium structure, he said, “in order to get a sufficient investment to attract a lender … and amortize the debt.”Occupancy ratesHartmann said the real killer in the local lodge industry is unused rooms, even in the high-end market. Aspen’s market is seasonal, he said, and that’s a challenge.”How do you spread tourism out?” he asked.Sixty percent average occupancy over the year drives up the average room rate, he said, but increasing that to 80 percent could help lower costs, thereby increasing the number of “affordable” beds.Casandra Foister, who represents a collection of small, affordable hotels known as the Gems of Aspen, agreed. With recent discussions focusing on increasing the number of affordable beds, Foister noted that it’s extremely rare for the city’s lodge rooms to be sold out.”The percent of occupancy should go up more year-round,” she said. “We have to look at quality over quantity.”Hartmann also suggested the council do what it can to limit kitchen components in rooms.”My concern is that [visitors] don’t go out in the community,” he said. “Restaurants need way more incentives than hotels do.”Foister was quick to disagree. Kitchens are necessary to draw renters, she said, although people tend to eat out anyway.”They will not use it,” she said, “but they will not rent it without it.”Future meetingsMonday night’s meeting can be viewed on GrassRoots TV. Consult the television station for times.The City Council will hold two more lodging work sessions, one at 4:30 p.m. today and a wrap-up at 4:30 p.m. Tuesday, Sept. 26, both at City Hall. The wrap-up will include a review of the previous two lodging work sessions.Abigail Eagye’s e-mail address is abby@aspentimes.com

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