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Shared ownership is still a risky business

16 March 2006

Condo hotels, fractional ownership and timeshare are still risky business models, according to hoteliers and industry investors at the International Hotel Investment Forum in Berlin last week.

Despite the high profile given to these models at this year's discussion panels, many industry commentators remain sceptical about their long-term viability in the UK.

"For these properties to work they have to be in a high-occupancy environment, otherwise you don't get the necessary returns," said Philip Camble, senior manager for travel, leisure and tourism advisory services at KPMG.

Sandra Kellman, global lodging group co-chair at law firm DLA Piper, agreed: "It's not good for the reputation of condo hotels if the model is seen as an exit strategy for failing sites. They have to work as hotels."

Offering fixed returns on investment, as proposed by developers such as GuestInvest and Galliard Homes, was another potential risk.

"If occupancy rates are not high enough, the balance of revenue may not be enough to cover the hotel's operating expenses," Camble explained.

One industry insider warned the models were a legal minefield waiting to explode. "It's a terrible way for developers to extract capital. No one knows where the market is to buy these hotel rooms, or what the resale market will be," he said.

Johnny Sandelson, chief executive of GuestInvest, who is currently promoting his second London property Nest, admitted the long-term credibility of the whole asset model would be established only in 15 years' time.

"Where the industry needs to be incredibly careful is in drafting the contracts, so we don't end up in trouble further down the line," he said.

David Stein, chairman of the Stein group, whose portfolio includes condo hotels, was still cautious about the concept's long-term future.

"A good idea poorly executed can destroy the whole concept for the next generation," he said.

Camble said the resale market for this type of investment in the UK remained untested. "The acid test for the model will be in the next economic downturn, when investors will be very reliant on their operator's skills to perform well."

By Emily Manson

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Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

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