Mexico Developer Finds Success in Condo-Hotel Business

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While many hotel-condo developments around the Caribbean and Central America flounder, a developer in Playa del Carmen, Mexico, is finding success with the much-debated model.

"We're in a unique situation," said Jack Pearlman, managing director of Playa Associates.

In eight years Pearlman and his partner, Vito Errico, the founder of Equinox fitness clubs in the United States, have built five hotel-condo projects, all within a two-block radius in central Playa del Carmen, the small town south of Cancun. Each is three to four stories, offering 20 to 45 fully serviced units.

The latest project, El Taj Oceanfront, which opened earlier this year, featured 42 condominiums priced between $400,000 and $1.3 million, each specifically designed to appeal to both owners and renters.

All the projects have sold promptly, thanks to several tweaks on typical hotel-condo schemes, Pearlman said. For one, unlike many hotel-condo projects, owners can use or rent the property as much as they want, without restrictions.

"We don't put a limitations because we know from experience people are not going to hoard their units," said Pearlman, a former public relations executive from New York City. "Not one owner occupies full time."

Buyers keep 65 percent of the rental revenue, with 35 percent going to the management company. Units typically rent for between $125 and $550 a night, aided by their location a block or two from Playa's popular beach and nightlife. (The typical occupancy rate for two- and three-bedroom units was 38 percent two years ago, although it fell to 25 percent last year, when the outbreak of the H1N1 virus and drug-related violence in other parts of the country decimated the tourism industry, Pearlman said.)

Playa Associates doesn't offer a rental guarantee. Owners can track their rentals and expenses online through a detailed unit management system.

"Perspective buyers can review all past rental history and determine if this is a good investment for themselves," Pearlman said. "Every buyer has different needs and objectives."

Unlike fractional and time share projects, the Playa developments allow owners to use a unit full-time if they choose, or resell it without complications

"The difference is people get the title, they are in control of the unit," Pearlman said.

A sense of scale also makes the concept work. Each building offers an amenity shared by all the developments--one has a gym, another has a spa, El Taj introduced a beach club. Owners and renters in each building can use facilities at all the projects.

Although many developments in Playa del Carmen were either delayed or cancelled in recent years, Playa Associates has no debt, allowing a certain measure of patience.

"We rent out the units," Pearlman said. "So we're in no rush to have to sell them like some other developers that are trying to finance their projects."

In a slow market, Playa's prices are higher than other projects, but the rental income helps the sales pitch, Pearlman said. Rather than discount, Pearlman has tried to add benefits, including the beach club and free transfer service from the airport.

In the last year there has been a change in the attitude of clients, he says. In the past, buyers bought units as vacation homes and then rented them out, Pearlman said. Now they're buying with a focus on using the property when it's not rented.

"It's a complete opposite shift," Pearlman said.

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