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A new hotel investment product in Spain is 'service apartments', which are called 'branded residences' in the luxury segment. They are gaining popularity, are generally seen by specialists as a very interesting product and have a particularly good return potential.
This “investment category”, which is currently taking off in Spain, is expected to grow “exponentially” and especially in the case of ‘brand residences’. This concept works in both urban areas, large cities that are also tourist attractions (for example Madrid, Barcelona, Valencia), but also in the holiday or second home sector (for example beach or golf resorts in Costa Blanca North, Costa del Sol or the Canary Islands). For instance, a first line resort with a hundred unique suites and a handful of super exclusive villas will be built in the popular and rapidly emerging Costa Blanca North (Benissa). Overlooking the beautiful coastline between Moraira and Calpe, the 'Patmore project' has a unique design that will undoubtedly put the region even more on the map as an exclusive destination. The project, in terms of services, quality and exclusivity, is comparable to Six Sense in Ibiza. IMMOFY is therefore proud to be selected as one of the exclusive providers of this promising product.
What are 'service apartments', also called 'brand residences'?
'Serviced Apartments' are apartments with hotel services and in the case of 'branded residences' these services are offered under a hotel chain or luxury brand.
The buyer of the apartment (investor) reserves a maximum of 14 days per year for its use and the rest of the time is transferred via a residence contract that is entered into by the hotelier on behalf of and for the benefit of the investor. Users of the apartments can enjoy basic amenities or services plus other additional amenities, to be agreed separately and to be paid separately, which are offered in and by the hotel.
Thus, there are three parties involved in this legal relationship:
- the developer, who develops land or renovates a building for hotel use,
- the investor, who buys the ‘serviced apartment’ and
- the hotel operator or manager, who provides hotel services in the hotel and in the apartments i.e. operates (under the flagship of a hotel or a luxury brand in the case of Branded Residences).
What are service apartments not? How do they differ from other flexible formulas?
They are not tourist apartments, nor flexible apartments for medium or short stay, because the ‘service apartments’ are managed by an operator who provides the end user (read hotel guest) hotel services in the field of hotel management based on an accommodation contract.
There is also no question of timesharing, because although the investor reserves a period for its use, the owner owns 100% of the full ownership and transfers its use to third parties, when he does not use it himself.
They are very similar to condo-hotels, regulated by the regulations in the Balearic Islands. The condo-hotel is a hotel that is horizontally divided, because the 'accommodations' are of different owners. In the case of Serviced Apartments, the hotel is not horizontally divided and the apartments (or villas) form separate registration units, because they are owned by different owners.
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What are the reasons for the current success?
'Service apartments' in Spain demonstrate their attractiveness for individual real estate investors - often foreigners - who want to enjoy a second (or third or fourth) home and at the same time want to benefit from the expected returns and appreciation of these investment objects.
This formula works successfully if it has advantages or ‘added value’ for all parties. The promoter of a piece of land for hotel use or the rehabilitation of a property suitable for hotel use, includes these types of apartments in his product mix to reduce risk and increase the profitability of his project (the hotel brand will enable him to sell the apartments at a certain -higher- price) and in turn reduce the need for financing (as the sale of the apartments will reduce financial debts). The investor who buys one or more apartments, hopes to achieve a greater return by the operation by an expert hotelier under a reputable brand (Branded Residences). The hotel operator obtains a broader and more flexible product mix, which contributes to improvement of the results.
What are the urban planning requirements to develop service apartments?
To ensure that the apartments can be exploited for hotel purposes, they may be located in the same building as the hotel, or in the immediate vicinity (for example villas on a golf resort), so that they can be operated by the hotelier as a whole, together with the hotel. In both cases, the land or building, where the apartments are situated, must be suitable for tertiary use (hotel, tourism) and not for exclusively residential use.
How are the legal relations between parties contractually regulated?
Relationship between the promoter and the operator and/or brand
In the initial phase of the project, the promoter and the operator will enter into a cooperation contract which includes the provision by the manager of advisory services on marketing and marketing, where the use of the brand is regulated. In addition, the responsibility of the manager also includes technical design advice with guidance of the implementation, so that it meets the requirements of the brand.
Once the execution of the works and the decoration is completed in accordance with the standards set by the brand, the parties sign the pre-opening and management contract.
Relationship between the promoter and the investor
In the execution phase of the works, the promoter and the investor conclude a private purchase and sale agreement and as soon as the works are completed, the parties grant a public deed for the transfer of ownership and possession of the apartment or villa, with payment of the remainder of the costs.
Relationship between the investor and the operator and/or brand
The investor will in turn enter into a management contract with the hotel operator, so that he will exploit the apartment for his benefit, in exchange for management fees.
Normally, the hotel manager, if it is a renowned international brand, has a contract model with immovable conditions to which the investors (each investor or the community of owners) adhere without further negotiation capacity. These contracts do not guarantee a minimum profitability for the investor, but are subject to fixed and variable fees (depending on occupancy and price) that offer incentives for the hotelier.
Relationship between investors and users
The end user (hotel guest) reserves via a hotel booking with the operator, who receives the payment and delivers the corresponding part of the price minus deductible costs and fees to the investor according to the management contract.
In short, 'serviced apartments' are an attractive real estate investment product, but from the first point of view possibly complex, just like the design, development and management of these types of projects. From the initial phase of the project, good contractual recording is needed, which correctly aligns the rights, duties and responsibilities of the promoter, the investor and the hotel operator or brand. Immofy and her network of legal and fiscal experts are well equipped to advise and unburden investors, so that they can enjoy their investment well informed and worry-free. For more information, I invite interested parties to contact me at: patrick@immofy.eu
