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Q. What is a condominium hotel?
A condominium hotel operates as a hotel but also adds the legal and financial structure of a condominium. The Guestrooms at Mandarin Oriental, Chicago offer qualified investors the chance to purchase an elegant and exquisitely furnished room or suite in a five star, luxury hotel in the heart of Chicago's new East Lakeshore neighborhood. Since it is a real estate purchase, a buyer receives a deed for a real property interest that the buyer can in turn sell whenever he or she chooses. And, because the condo unit or room is a real property interest, a prospective buyer should consult a tax and investment advisors to explore the potential for tax benefits and appreciation which should be like those available in any condominium purchase. When the condo unit owner stays at the hotel, he or she has access to all of the hotel's amenities, including its two restaurants, lounges, meeting facilities and a world class spa, as well as exercise facilities. When the owner is not staying in the room, it can be made available to rent through the hotel's voluntary rental program.
Q. Who Manages the Hotel and the Rental Program?
The Mandarin Oriental, Chicago Hotel is managed by affiliates of Mandarin Oriental, the Hotel Group (“MOHG”), under long term management agreements with the hotel's owner. MOHG companies operate 22 hotels around the world, including five properties in the United States. MOHG will operate not only the hotel's voluntary rental program, but will also market the hotel to the public, operate the front desk, take reservations, maintain the property, serve the food and beverage in the restaurants, room service and meeting rooms, provide group meeting and convention services in the hotel’s meeting areas, and provide all of the other services that guests expect in world class, luxury hotels, like housekeeping, concierge, bell desk, and telecommunications services. For more information on MOHG and the hotels it operates, please consult the company's website at www.mandarinoriental.com.
Q. What are the expenses of a condominium hotel?
Each owner of a room will receive a monthly invoice to cover a proportionate share of the costs of utilities, repairs and maintenance, sales and marketing, general administration, accounting, insurance, labor and other operating expenses of the hotel. In addition, each owner will receive a monthly assessment to cover common area expenses incurred for the property owned by the condominium association, and will be responsible for paying his/her own mortgage and real estate taxes. As part of the monthly charges assessed under the unit maintenance program, the hotel will establish (and collect) a reserve for future renovations to the public spaces of the hotel.
Q. May I Furnish my Own Room?
All rooms at the Mandarin Oriental, Chicago Hotel are being sold completely furnished. In order to maintain a consistency of appearance as a luxury class hotel for the traveling public, all room owners must participate in the hotel's furnishings program, whether or not the room owner is a participant in the hotel’s voluntary rental program. The furnishing program of the hotel provides for repairing and replacing furniture, fixtures and equipment as necessary, as well as for future renovations of the hotel rooms and public spaces. Charges for the rooms furnishing program, including future reserves, are assessed monthly as part of the hotel's unit rental program.
Q. Are all of the rooms in the Mandarin Oriental, Chicago Hotel being sold as condominium units?
All of the 252 guest rooms and suites in the hotel are being offered for sale as condominium units.
Q. Where can I find more information about the hotel business in Chicago?
The Chicago Convention and Visitors Bureau and the Greater Chicago Chamber of Commerce have statistical information about the historical results of hotel operations in Chicago. In addition, buyers should consider consulting with financial advisors who have experience in the hospitality field for more specific advice.
Q. What are the Benefits of being a Room Owner in a Condominium Hotel?
The most important benefit is hassle-free ownership. When the owner wants to use his room or suite, he/she simply calls the hotel to schedule a stay. Unlike a conventional condominium, all of the normal hassles of upkeep and maintenance are taken care of for the owner by the hotel's management company. In addition, when not using the room, the owner has the opportunity to have it rented either through the hotel's rental program, or through any other means selected by the owner.
Q. Is participation in the Rental Program mandatory?
No, participation in the hotel's Rental Program is completely voluntary, and is offered as a convenience to guestroom owners. No owner is required to include his/her unit in the program, or to rent his/her unit at all, or may use other means, like brokers, to rent his/her unit. However, anyone staying in the room must go through the hotel's reservations office and check-in at the hotel's front desk for security purposes.
Q. If I put my room in the Rental Program, can I still stay in it when I want to?
Although the management company will try to assign owners to their own units or rooms whenever possible, sometimes when the hotel is very busy or when the owner calls for a reservation on short notice, the owner's room might already be reserved for rental to a member of the public. In that case, the management company will attempt to accommodate the room owner in another owner's room.
Q. How does the Rental Program Work?
The rental program is entirely voluntary. It allows the owner of a unit to make it available for rental to the public through the hotel's management company. If an owner decides to participate in the program, he/she enters into a unit rental agreement with the hotel's manager that provides for marketing and rental of the room as a hotel room by the manager in return for a rent to be paid to the room owner. In order to maintain control over the hotel's room inventory, the unit rental agreement provides for a minimum number of days that the owner must make the room available to the manager for rental to the public.
Q. How does my Room get Rented?
Every room that is in the voluntary rental program will be placed in a special, electronic reservations system that the hotel will implement in its reservations department. The system is designed to rotate room rentals among all unit owners so that revenues are spread fairly among all room owners. Specific requests of customers for specific types of rooms or price points may affect the rotation system's ability to ensure that all rooms are rented for an equal number of nights. The manager will be solely responsible for determining the nightly room prices offered to the traveling public, as well as for food and beverage, spa services and meeting room and related prices.
Q. How is Rent Calculated?
As explained in more detail in the unit rental agreement, the hotel manager sets the room rates for each unit, and collects the room revenues paid by persons staying in an owner's room. The net revenue generated from the guestroom is paid to you by the hotel management company. Net revenue equals the revenue paid by a guest minus a management fee, an operating expenses fee and a reserve fee for future capital expenses. Operating expenses for the room include marketing and promotion expenses, housekeeping, linens, guest supplies, reservations, credit card commissions and the like. The hotel manager will keep books and records for each room owner who elects to enter into the voluntary rental program and will pay 100% of the net revenues based on the revenues of that room (but not including any food and beverage, meetings, telecommunications, pay-per-view or other revenues) every month. More information on the calculation of rent is contained in the unit rental agreement.
Q. How long is the Unit Rental Agreement?
The unit rental agreement is structured like a lease and is for an initial term of five years. As explained in more detail in the unit rental agreement, a room owner may terminate the agreement after three years upon payment of buy-out damages to the hotel. When a room owner sells his/her unit, the buyer receives the benefit of and must assume the unit rental agreement.
Q. Where can I find more information about the rental program?
The unit rental agreement contains detailed information about the rental program and its terms and conditions. Buyers who are interested in the rental program should consult their attorneys or financial advisors about the unit rental agreement. Since legally it is impossible to rent out property that one does not own, a buyer will be allowed to enter into a unit rental agreement only after entering into a binding contract to purchase a unit in the Hotel, and the effectiveness of the unit rental agreement will be contingent upon the closing of the purchase. Prospective purchasers should note that the rental program is offered principally for convenience, and units are not suitable for persons seeking primarily rental income. No projections of any kind with respect to potential revenues, costs or income will be provided to any purchaser.