Miami Hospitality Market Heats Up

November 09, 2015

Some critics have voiced concern that too much new inventory is going to flood the Miami hospitality market and that too much of that new inventory is luxury. Since January of 2015, approximately 2,800 rooms have been added to the greater Miami hospitality market and approximately 2,000 more rooms are expected in the next 15 months[1]. However, upon closer inspection, in addition to new luxury hotels such as a second SLS Hotel coming to Brickell and a second Four Seasons Hotel in Surfside, many of these rooms are in currently underserved markets like Sweetwater, Doral and the Airport, or are geared towards a more hip, cost-conscious guest. For example, in June affiliates of Robert Finvarb opened both the AC Hotel by Marriot and the Hyatt Centric South in South Beach conveniently located across from the luxury Edition Hotel and the Loews Hotel. Other examples of new cost-conscious hotels include the Sheraton Four Points in Coral Gables and a Residence Inn, Springhill Suites and Hyatt Place near the Miami International Airport.

Additionally, even though inventory has increased, so has demand, both from domestic and international travelers, for Miami’s world-class beaches, unparalleled shopping, nightlife and restaurants and vibrant arts scene. For the time period from January through September 2015, domestic passenger arrivals into Miami International Airport increased by more than 10 percent and international passenger arrivals increased by more than 6 percent, each as compared to the same time last year. New or increased nonstop passenger flights into Miami International Airport are scheduled from Vienna, Istanbul, London, Munich, Paris, Zurich, Helsinki and Berlin and there is even talk of obtaining a nonstop flight to China from Miami. Further, despite the new inventory, the Miami hospitality industry is performing better than ever. Occupancy rates for January through September 2015 were close to 80 percent, average daily room rates (ADR) climbed to just under $200 and revenue per available room (RevPar) reached over $150.

With demand increases like these, it is not surprising that lenders are flocking to South Florida too. As hospitality broker Max Comess, a Managing Director at Holliday Fenoglio Fowler, stated, “for the South Florida hospitality market, times have never been better in terms of operations and times have never been better in terms of financing markets.” Lenders are competing to make loans to top borrowers. In a recent CMBS Loan transaction secured by a Doubletree Hotel, five different CMBS originators were competing against each other for the $50 million loan[2]. When the negotiations were finally over, the borrower ended up with a higher loan amount and a lower interest rate. Even community banks, which historically have been weary of the hospitality industry, are getting into the game. Local south Florida lenders like Total Bank and Sabadell United Bank NA are now active in the hospitality market.

Naturally, Hotel owners are taking advantage of the generationally-low interest rates and favorable loan terms. Many South Beach hotel owners have capitalized on large loans in the last few months. Starwood Hotel & Resorts Worldwide, LeFrak Organization Inc. and Invesco Ltd. recently closed on a $250 million loan from Deutsche Bank AG secured by the One Hotel in South Beach[3], Key International closed on a $95 million CMBS loan secured by the historic Eden Roc Hotel, Cherit Group closed on a $55 million loan from BB&T secured by a group of hotels and apartments in South Beach and the owners of the W South Beach refinanced its existing indebtedness and increased the loan balance to $140 million.

Lenders are not just interested in South Beach, however. Miami International Airport and Miami’s retail industry have drawn tourists further west. Bank of America recently closed on a $98.5 million loan secured by three hotels located near Miami International Airport, Trump took a short break from the campaign trail to close on a $19 million loan from Deutsche Bank for the Trump National Doral, The Procacci Group closed on a $34 million construction loan secured by a dual-branded hotel in Sweetwater near the Dolphin Mall[4], Yankee Development Corp. received a $10 million loan from M&T Bank, Ocean Bank made a $34.5 million construction loan for the planned Hotel Indigo in the Brickell Area and BB&T is planning on closing on a construction loan for a new Aloft by the Miami International Airport.

Miami is not only a top destination among the various cities in Florida, but it is ranked No. 4 in average daily room rate (ADR), No. 4 in revenue per available room (RevPar) and No. 8 in hotel room occupancy among the top 25 U.S. markets as defined by Smith Travel Research. With several major new mixed use and retail projects in the works, including Miami Design District, Brickell Citi Centre, The Mall at Miami World Center and American Dream Miami, a 200 acre, $4 billion shopping complex on the edge of Western Miami-Dade, a brand-new high speed train service poised to connect Miami and Orlando starting in 2017, and cruise ships launching trips from Miami to Cuba in May 2016, the Miami hospitality industry is well positioned to continue to thrive in the years to come.

[1] Statistics in this Article provided by: Smith Travel Research, Prepared by Greater Miami Convention and Visitors Bureau. 

[2] BSBPA worked on this transaction.

[3] BSBPA worked on this transaction.

[4] BSBPA worked on this transaction.

This article is reprinted with permission from Law360.

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