Mixed-use is the new name of the real estate game. Once viewed with suspicion and derision, mixed-use is being embraced as a legitimate class of real estate. Increasingly, hotels are gaining recognition as the “ultimate amenity” for mixed-use projects because hotels can distinguish the project, drive traffic to the property, and provide a dynamic hub for the mixed-use village. The recent explosion of condo hotel development has played a pivotal role in the mixed-use revolution and has helped establish hotels as integral and successful components of mixed-use projects. Their rapid proliferation also forced the development of new business and legal technologies, and a handful of talented professionals have risen to the challenge of complex mixed-use developments with innovative and synergistic approaches that have created a buzz in the real estate industry. Some think the high-flying days of the condo hotel phenomenon are drawing to an end, and point to increasing negative publicity, particularly in South Florida where the boom has become superheated with capital from baby boomers and foreign sources. Others point to Las Vegas, where last year more than 150 condo hotel projects had been announced, and some are now being canceled (as if even Las Vegas could absorb that many projects). We disagree with the doomsayers. Condo hotels have earned an enduring place in the real estate and hotel landscape. Yes, there may be fewer condo hotels as consumer demand moderates to more normal levels. Yes, future condo hotel regimes may be more “balanced” with a mixture of traditional hotel rooms, permanent residential condominiums and fewer condo hotel rooms (where the hotel room has been turned into a condominium and sold to a buyer). Sparking Excitement But hotels will continue to be combined with residential and other types of real estate in increasing numbers of mixed-use projects. When they are well conceived, carefully planned, and skillfully executed, hotels will be the spark that ignites the combustive excitement, and will act as the unifying force for the interaction of a new generation of mixed-use projects. Our direct experience with more than 80 hotel mixed-use projects over the past five years, all of which involved a condo hotel or residential component— often with other commercial real estate uses as well— has allowed us to participate in an intense effort that has produced some breakthrough solutions to obstacles that held back many earlier mixed-use projects. This effort has created an exciting new technology of business and legal arrangements as well as a deep pool of practical experience. Together, they are paying big dividends to those whose mixed-use projects were previously constrained. It is the combination of the technology with hands-on experience that is critical to the success of hotel mixed-use as it takes an ever more-prominent role in commercial real estate. But more importantly, as mixed-use projects get bigger, they are changing. Many are now master-planned cities—lifestyle villages on 75 acres or more. Mixed-use is beginning to define some segments of hospitality, and hospitality is becoming intimately intertwined as part of the lifestyle community. A lot is riding on these master-planned mixed-use projects, and the “right” pairing of a hotel with a residential product is important. To distinguish the mere placement of different real estate uses next to each other (i.e. a hotel next to a retail center next to a sports facility), JMBM has developed some approaches for successful projects which we call “hotel-enhanced mixed-use” –both to signal that the mixed-use project includes a hotel component, and to emphasize that when properly executed, the hotel component will be integrated with, complement and enhance the other real estate uses, as they will similarly benefit the hotel. The enhancement benefits are functional, economic, and lifestyle. Hotel-enhanced mixed-use is not a fad, whatever its relation to the condo hotel. It is here to stay because it is sustainable, profitable and responds to consumer demand for easy access to lifestyle amenities. But mixed–use can be complicated because the integration of the different product types and services must be seamless. Missteps can be costly, so it’s important to address all legal issues from the very start. But when backed by the right team and the best technology, developers will find that their mixed-use visions can be realized. Jim Butler is a hotel lawyer and business advisor specializing in creating solutions for hotel owners, developers and lenders. Jim leads a team of 50 members of the Global Hospitality Group of Jeffer, Mangels, Butler & Marmaro LLP in Los Angeles, California, where they have assisted clients with more than $40 billion of hotel transactions around the globe involving more than 1,000 properties. In the last 5 years alone, they have advised clients on more than 80 hotel-enhanced mixed-use projects, virtually all of which have included condo hotels and hotel condos. To discuss your hotel questions or experiences, contact Jim at 310.201.3526 or [email protected].
