Frequently Asked Questions
Q. What is a Condo-hotel?
A. A condo-hotel is a facility designed, built and managed as a hotel with the ownership structure of a condominium. This type of development meets several needs that make it attractive. The increase in hotel development costs has made financing new hotels difficult, especially in major cities. By selling hotel rooms and suites condo-hotels, a developer moves much of the development cost to the condominium owners. By owning units that can be rented as hotel rooms, the owners have the possibility of obtaining a return on their investment allowing them the ability to own real estate in a resort or a major city. Condo-hotel ownership is hassle-free; the hotel management company is responsible for renting, cleaning and maintaining the unit.
Q. What makes this an excellent real estate investment?
A. - It can generate rent revenue that offsets the costs of ownership.
-It’s a real estate investment in Puerto Rico’s hottest market with great appreciation potential.
-Condo-hotel owners who participate in the hotel’s rental program benefit from substantial tax incentives granted by the Tourism Development Act of 1993 including tax credits and 90% tax exemption on income received.
Q. When will the hotel open?
A. The La Concha Tower will be marketed as part of La Concha Resort & Casino, which is planned to open in the first quarter of 2007. It is estimated that La Concha Tower will open in the fall of 2008.
Q. Condominiums have monthly maintenance fees. What about condo-hotels?
A. As a condominium, the Owners Association has an operational budget for maintenance and upkeep of common areas such as hallways, elevators, swimming pool, landscaping, utilities, security services, pest control and administration of the association. Each owner is required to pay a monthly fee to cover a proportionate share of those fees.
Q. Are the condohotel units fully furnished?
A. Yes, the interiors of La Concha Tower have been beautifully designed by the renowned firm of Jorge Rosselló Interior Designers and Space Planners.
Q. Is participation in the rental program mandatory?
A. Yes. You will be required to enter into a mandatory three-year agreement with the hotel manager to operate your suite as an integral part of the hotel. This agreement will be automatically renewed at each three year interval if not notified to the contrary by either party. It is important to point out that the special tax benefits afforded to Puerto Rico residents are only available to owners who are part of the rental program.
Q. What are the tax benefits for participating in the hotel rental program?
A. The Tourism Development Act of 1993 offers very attractive incentives for tourism investors. By participating in the hotel rental program, eligible condo-hotel owners can qualify for the following incentives:
a) Tax credit equal to 50% of total cash equity up to 10% of the total value of the condo-hotel unit, whichever is less.
b) Up to 90% exemption on the condo-hotel income earned.
c) Up to 90% municipal property tax exemption.
d) Up to 100% excise tax exemption on imported articles.
For specific implications regarding your individual or corporate tax situation, we suggest you consult a qualified accountant or tax attorney.
Q. How do I apply for the tax exemption?
A. Once you have purchased your condohotel suite, an application should be filed for tax exemption under the Tourism Development Act of 1993 with the Executive Director of the Puerto Rico Tourism Company and with the Secretary of the Treasury.
Q. Can the hotel units be financed?
A. Yes, like any real estate transaction, owners may obtain mortgage financing.
Q. Can I purchase under a corporate name, LLC or special partnership?
A. Yes, but we recommend that you consult with a tax attorney for specifics regarding your particular situation under Puerto Rico law.
Q. Are there any restrictions to selling my condohotel suite?
A. As with any real estate property, you are free to sell your property at anytime. However, only the original purchaser of the property is entitled to the tax credit and, on resale, subsequent buyers are only entitled to the remaining portion of the initial 10-year tax exemption period, which is subject to renewal provisions in the law. The original purchaser of the unit is also subject to recapture of the tax credits if he/she sells the unit before the expiration of the 10 year period and the new purchaser takes it out of the rental program.
Q. Is there a limit on the number of days an owner can use his suite?
A. The law limits owner usage to a maximum 30 days per year for advance reservations and 60 days for walk-ins in order to maintain tax exempt status. A walk-in is defined as a reservation made after 11 a.m. on the day the unit is occupied. The rental agreement with the Hotel will further restrict usage of units during high demand periods.
Q. How will I know how often my unit is rented and at what price?
A. The hotel’s goal is to maximize revenues for mutual benefit. Within thirty days of the end of each month, owners will receive a detailed statement of the previous month’s revenues and expenses for their individual unit. There will be no pooling of income or expenses at La Concha Tower.
Q. How can I be sure my unit is being rented as often as another?
A. The hotel will rent rooms based upon requested room type, requested view (if any), requested rate and availability at the moment of check-in as individual rooms are not normally blocked prior to a guest’s arrival. In recent years, hotels in the San Juan metropolitan area have typically run occupancies in the 80% range.
Q. Can owners have mortgage payments and/or real estate taxes deducted from net rental proceeds?
A. No, it is the owner’s responsibility to pay any monthly mortgage payments or taxes. The hotel operator will deduct expenses relative to the rental and upkeep of units as provided in the rental agreement.
Q. Is this a timeshare project?
A. Absolutely not! Timeshares are normally the “right to use” a unit, usually for periods of 7 or 14 days, normally for vacation purposes. At a timeshare you share a unit with other buyers. When you own a condo hotel unit you are the only owner of the condominium and receive an actual deed to your property.
