Skip to Content

Condo Beachhead Battle

Condotel Fears Spark Debate

Article written by Jack Carr, P.E., R.S., LEED AP, Criterium Engineers
Published in Condo Media, August 2012

The oceanside Maine neighborhood in Scarborough called Pine Point is gearing up for legal combat. Battle lines are forming and arms raised in confusion and anger.

Why? Because condo terms are being loosely used and totally misunderstood.
It all started when the owner of a 22 unit motel approached the zoning board for approval to convert into an eight-unit residential condominium. Many of the neighbors were in an uproar when the project was formally presented in November. They were convinced the conversion would create a condoteL Like it sounds, a condotel is a cross between a condominium and a hotel. Neighbors expressed vocal opposition as they felt a condotel could be a blight on the neighborhood due to transient renters being less responsible than owner-residents. Many of the zoning board members, as well as the neighbors, were not sure what the definition of a condotel was, even though the word was used continuously.

Condotel vs. Condo

There are many differences between a condotel and a condo. A condotel is a type of property that comes fully furnished and equipped. Like a condo, a condotel unit shares responsibilities of common elements including the lobby, hallways and elevators, but could also have access to hotel-quality amenities such as concierge and maid services, spa facilities, restaurant, lounge, pool and workout rooms.
Though they can be found in surrounding towns, Scarborough has not established a condominium ordinance to deal with condotels or condominium conversions. Nearby South Portland and Portland have well-established model condominium ordinances to address these questions, but many towns do not enact these procedures until a problem project arises. Though Pine Poiut may not be on the same destination plane as Palm Beach, it is becoming a popular retirement and year-round residential spot. The condotel concept allows an investor the opportunity to make a relatively low-cost investment in a potentially good real estate growth area, while providing a second home
without requiring personal maintenance and visits. In effect, condotels are a type of timeshare system where your unit is in a rental pool generating income when you are not there.
Some developers see an advantage in the condotel model. With the real estate market tentatively improving, banks are seeking more security and developers are looking for alternative funding. Without changing the size of the hotel, a developer can reduce the scope of a project by selling rooms as condo units and shifting the development costs to unit owners.

Fannie Mae Questions

The irony of this matter is the Pine Point developer had emphatically stated he designed his project to not be a condotel, but rather a standard
residential condominium. To placate fears of the neighbors, the zoning board added a provision to its agreement to proceed in November. This
provision required the project receive a "Fannie Mae approval" before a building permit was issued. By this time, the developer was willing to
agree to anything to move ahead, even though he had no idea what a "Fannie Mae approval" was. It turned out the zoning board members did
not understand the process either.
There are four methods for a project to be reviewed by Fannie Mae: 1) Limited Review; 2) Condo Project Manager (CPM) Expedited Review; 3) Lender Full Review; and 4) Fannie Mae Review: Project Eligibility Review Service (PERS). None of these will place a project on the Fannie Mae approved list before the project is built. In June, when it was time to ask for a routine six-month extension to avoid a construction project in the middle of the area's tourist summer, the developer's lawyer advised the board a "Fannie Mae approval" could
only be granted to a project that was built with 70 percent of the units sold. The lawyer stated the project was committed to seeking Fannie Mae approval as soon as it was possible.
The board did not feel this verbal commitment was enough protection and a raucous debate commenced. Two hours later, the board finally
granted the extension, but would not remove the Fannie Mae approval requirement. The town's code enforcement officer was seated with
the board, and when asked his iuterpretation of the approval he said he could not grant occupancy certificates to units without a Fannie Mae
approved project. When it was pointed out the approval could not happen until 70 percent of the units were sold, he indicated that was not his
problem. So it continues.