With the flood of new inventory arriving in the Miami hospitality market has come some concern 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.
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 actually in currently underserved markets such as Sweetwater, Doral and the airport, or are geared toward a more cost-conscious guest.
For example, in June affiliates of Robert Finvarb opened both the AC Hotel by Marriott and the Hyatt Centric South in South Beach conveniently located across from the luxury Edition Hotel and the Loews Hotel. Other examples of these new cost-conscious hotels include the Sheraton Four Points in Coral Gables and a Residence Inn, Springhill Suites, and Hyatt Place near Miami International Airport.
The dramatic rise in new hotel inventory has called for an increase in demand from domestic and international travelers, for Miami’s world-class beaches, unparalleled shopping, nightlife and restaurants, and vibrant arts scene.
From January through September 2015, domestic passenger arrivals at Miami International Airport increased by more than 10 percent, and international passenger arrivals increased by more than 6 percent 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 climbed to just under $200, and revenue per available room topped $150.
With these notable demand increases it is not surprising that lenders are flocking to South Florida, too, and competing to make loans to top borrowers.
“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,” hospitality broker Max Comess, a managing director at Holliday Fenoglio Fowler, said.
For example, in a recent commercial mortgage-backed securities loan transaction secured by a Doubletree Hotel, five different originators were competing for the $50 million loan. When the negotiations were completed, the borrower ended up with a higher loan amount and a lower interest rate. Even community banks, which historically have been wary of the hospitality industry, are getting into the game. Local South Florida lenders like Total Bank and Sabadell United Bank are active in the hospitality market.
Hotel owners are also taking advantage of low interest rates and favorable loan terms. In the past few months, several South Beach hotel owners have capitalized on large loans. Starwood, LeFrak, and Invesco recently closed on a $250 million loan from Deutsche Bank secured by the 1 Hotel in South Beach. Key International closed on a $95 million 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.
This booming activity is not just happening in South Beach: Lenders have shown interest in Miami International Airport and Miami’s retail industry, which has drawn tourists further west. Bank of America recently closed on a $98.5 million loan secured by three hotels near Miami International Airport; Trump closed 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; 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 Miami International Airport.
Miami is not only a top destination in Florida, but it is ranked No. 4 in average daily room rate, No. 4 in revenue per available room and No. 8 in hotel room occupancy among the top 25 U.S. markets (as defined by Smith Travel Research).
With several sizable mixed-use and retail projects in the pipeline, 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), 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.
Suzanne M. Amaducci-Adams is Real Estate Practice Group Leader with Bilzin Sumberg. Alexandra Lehson is an associate with Bilzin Sumberg and focuses her practice on all aspects of commercial real estate transactions. www.bilzin.com/