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Miami Beach — New Hotbed For Boutique Hotel Deals

No longer are the major hotel flags of the world the only ones taking their talents to South Beach. Boutique hotels are becoming the focus of the Miami hospitality market at a time when investors are pouring millions into Miami real estate.

The small boutique hotels that line Collins Avenue and Ocean Drive in Miami Beach — once controlled by mom-and-pop operators — have become the new darling of investors. They are being targeted by overseas capital, some of the country’s largest hospitality investors and brands reacting to a consumer demand for the personal service and memorable experience that boutique hotels can offer. Miami Beach is becoming a mecca for the reinvention of boutique hotels of all sizes, each attempting to bring a different, and in most cases, luxurious experience to the ever-increasing number of visitors to the area.

As Miami continues to become a global city and one of the top five hospitality markets in the nation, the voracious appetite for boutique hotels is changing that segment of the hospitality market in South Florida. There are a multitude of reasons why investors, including institutional investors, see Miami Beach as a hotbed for boutique hotel acquisitions and development.

For one, the Miami area is consistently near the top of the charts when it comes to hotel investors’ and developers’ traditionally valued metrics: average daily occupancy rate, average daily room rate (ADR) and revenue per available room (RevPAR). Other top U.S. markets with similar metrics are New York, Oahu Island and San Francisco. In South Florida, Miami Beach is consistently the leader in these important hospitality metrics.

In addition to the stellar metrics, Miami Beach boutique hotels have another bright spot: growing revenue streams generated through a hotel’s restaurant, spa, lounge, bar or nightclub — components often present in boutique hotels. Miami Beach’s vibrant hotel nightlife is a revenue driver as the majority of the most chic and popular restaurants and clubs in Miami Beach are located in or adjacent to a boutique hotel.

Miami is the go-to place to “see and be seen” in popular culture. And now, that attitude is becoming pervasive in the hospitality industry as hotel operators and investors realize that in order to be competitive and to bring clout to a brand’s other locations across the globe, they must have a hotel in Miami Beach.

As Max Comess, director in the Miami office of HFF, recently explained:

People are buying hotels in Miami because such investors “see Miami as a place they have to be in to be taken seriously. If you’re not in Miami with a spectacular property, you’re not going to be competitive on the global stage as a luxury lifestyle brand.”

Miami Beach is uniquely positioned to benefit any boutique hotel investor or developer, as the area is like no other place in the U.S. with its international flavor, global influence, world-class beaches, and nightlife and exciting new restaurants. Miami Beach has some of the most unique architectural gems and offers an experience that appeals to a broad range of visitors, including domestic and foreign travelers alike.

A flurry of acquisitions and development transactions since the recession underlines investors’ and hotel operators’ competition to enter the Miami Beach hospitality market or to strengthen their foothold in one of the hottest markets in the U.S. and abroad. Some big names have been successful entering Miami Beach in recent years and they are working at creating a unique product to set themselves apart.

For instance, LeFrak and Starwood Capital Group are converting a former hotel on Collins Avenue into the first hotel under the new brand, 1 Hotel. 1 Hotel & Homes South Beach will open this winter with 426 guest rooms sitting directly on 600 feet of beachfront property. The hotel is designed to integrate the nature of South Beach into every corner, whether creating an organic entry point to the hotel or sourcing local craftsmen to create design details for the guest rooms. Every element on the property, from its four uniquely distinctive swimming pools to its farm-to-table restaurant by award-winning chef Tom Collichio, will be inspired by nature. Other properties under the 1 Hotel brand include two New York locations — one near Central Park and another near Brooklyn Bridge Park — which will also be opening later this year.

In December 2013, long time Miami Beach hoteliers Menin Hotels opened the Gale South Beach, with 87 rooms, after injecting $35 million in renovations to two hotel properties originally erected in 1941 and which had fallen into disrepair. The results are extraordinary as the property has an elegant, classic feel with plenty of Miami Beach touches, including a rooftop pool, a basement nightclub, a classic cocktail bar and lounge, and a consistently packed restaurant, Dolce Italian.

Earlier this year, fashion icon Tommy Hilfiger’s Hilfiger Hospitality purchased the famous art deco-style Raleigh Hotel. His group plans to renovate the 105-room hotel with Hilfiger playing a leading role in such renovations. The acquisition also serves as a launching pad for Hilfiger’s planned-to-be global hotel brand.

Hilfiger’s acquisition is another sign of investors’ appetite to be in the lifestyle-hotel business in Miami Beach. Hilfiger’s iconic name in fashion, art, music and entertainment comes to symbolize the same drivers behind the substantial growth of Miami Beach as a global hotel market. So, it makes sense that an iconic name would be attracted to one of the most iconic single hotels in Miami Beach.

Another example is the launching of Edition in Miami Beach, a boutique hotel concept. Edition is the result of a partnership between Ian Schrager, the mastermind behind Miami Beach’s famous Delano and Shore Club hotels, and Marriott. The boutique hotel is scheduled to open in the latter half of 2014. The Edition will feature a luxurious boutique hotel and private residences, two of which recently sold for $34 million. Edition would also include a restaurant, a nightclub, a bowling alley and an ice skating rink.

Investors know that when it comes to owning and operating a boutique hotel in Miami Beach, competition is tough. Customers are increasingly requiring that these small hotels offer exceptional personal service, distinct and stylish design, and a unique experience. For that reason, from local companies to global brands to fashion icons to foreign investors are increasingly acquiring and investing in boutique hotels to enter Miami Beach’s highly competitive hospitality market and meet such demand.

This article is reprinted with permission from Law360.

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Albert E. Dotson Jr. is a partner with Bilzin Sumberg Baena Price & Axelrod and leads the law firm’s government relations and land development practice.