Rise of Condo-Hotels, Not Timeshares Brings Fears

With the Coachella Valley on the cusp of a proliferation of condominium-hotels, some are expressing fears their presence might also cause a decrease in transient occupancy taxes, a key source of funds for desert cities.
Some valley cities aren't waiting to find out what the impact will be and are drafting ordinances that they think will address any shortfalls.

Indian Wells is about to see construction begin on two condo-hotel projects, not timeshares Remington Las Montañas Resort & Spa and Fairmont Residences, with units priced in the $750,000 to $900,000 range.

The city has drafted ordinances to help preserve transient occupancy tax revenues.

Bed tax is important because the lion's share of a city's general fund is derived from those revenues, helping to pay for city services, salaries and infrastructure. The dollars also filter into tourism promotional efforts to keep desert timeshare resort communities in the forefront and attract more than 3.5 million visitors annually.

The Indian Wells ordinances define the condo-hotel in such a way to ensure it:

Is labeled as a commercial property, so it cannot be used as a permanent place of residence.

Limits stays by condo unit owners to no more than 60 cumulative days in a calendar year.

Requires each unit to be made available as a rental or timeshare unit for guests, subject to tax, at least 304 cumulative days of a calendar year.

Indian Wells Councilwoman Mary T. Roche looks upon the 60-day concession on bed tax - set at 9.5 percent in Indian Wells - as a trade-off to attract high-caliber hotel resort development.
"There is no lost revenue,'' said Indian Wells City Manager Greg Johnson. "We look upon these projects as an enhancement."

Indian Wells is projecting it will collect $5.2 million in bed tax revenue this fiscal year. "We think, in Indian Wells, with these two condo-hotel projects, alone, we're looking at driving up the TOT somewhere in the neighborhood of $2 (million) to $3 million."

It will likely prompt a hike in the average daily rate charged by nearby hotels, Johnson said, and bolster sales in the lifestyle centers around it.

The cities of Rancho Mirage and La Quinta are paying close attention.

La Quinta Mayor Don Adolph said city officials are mulling the prospect of weaving a type of homeowner's association fee into a proposed condo-hotel project at SilverRock Golf Resort into the revenue equation for condo-hotel buyers.

Under this scenario the dues would be calibrated against hotel occupancy rates, and would go to the city whether the units were rented out, or not.

Rancho Mirage City Manager Patrick Pratt anticipates reviewing some form of condo-hotel legislation, as well.

The Lodge at Rancho Mirage, which is owned by GenLB-Rancho, a partnership led by Gencom Group of Miami, has said it wants to reshape its timeshare resort into a renovated, three-floor hotel with about 122 hotel-condo units and villas.

Palm Springs Finance Director Craig Graves said the city has not specifically focussed on the issue.

But it is looking for ways to capture revenue from private investors or small groups who rent out homes or condos as timeshare units.

"Everyone is talking about it,'' said Tim Ellis, general manager of Palm Mountain Resort, Palm Springs. "It's a new inventory coming into the marketplace."

The trend is becoming so prevalent, in fact, Hospitality Design Expo in Las Vegas dedicated a special educational session to the topic.

Howard C. Nusbaum, president and chief executive officer of Washington, D.C.-based American Resort Development Association, which represents the vacation ownership and timeshare resort development industry, said these sessions are important because myths about lost bed tax revenue pop up from time-to-time.

Quite the contrary, Nusbaum said. "Mixed use is becoming the name of the game."

Nusbaum said there are tradeoffs that should not be overlooked. He said a study in South Carolina showed that timeshare operators brought 10 people into the resort hotels for the one person who bought a unit. That one buyer, tended to spend more while on vacation because their lodging was pre-paid, and that those who came and didn't buy stayed in hotels and spent money on tourism activities.

"This is good for all the cities,'' Ellis said. "It's new inventory coming into the market place," which drives up the attraction level of the valley as a whole.

I would rather them build more timeshare units.