Latin American hotel investors are betting on Miami. Thank Super Bowl LIV.
Hotel occupancy rates tanked in South Florida in the spring due to Covid-19, which has forced some owners into foreclosure. Despite the challenges, some investors are banking on a healthy rebound.
They include slugger Alex Rodriguez, better known as A-Rod, who recently partnered with Raoul Thomas of CGI in a $650 million fund to acquire and reposition hotels in the Caribbean.
Latin American investors are also showing interest, focusing not on present conditions but past performance, said Carlos Rodriguez Sr., CEO of the Miami-based investment and development firm Driftwood Capital and executive vice president of Driftwood Hospitality Management. Prior to the pandemic, local hotels were booming: occupancy rates increased by 11% from 2018 to 2019, and the average daily hotel rate more than doubled during the 2020 Super Bowl versus the big game in 2007.
Rodriguez oversees Driftwood Capital’s 27-hotel portfolio, including the 108-key Tru by Hilton/Home2 Suites in Flagler Village in Fort Lauderdale, which opened in November. He also leads Driftwood Hospitality Management, which manages 71 hotels across the country in Arizona, Florida, Georgia and Texas.
After graduating from Vanderbilt University and Duke University’s School of Business, Rodriguez worked with his father in the family business Hoteles Aurola in his native Costa Rica. In 1996, Rodriguez and his wife, Pamela, moved to Miami and opened their first hotel, a 120-key Holiday Inn Airport West in Doral. They also launched the Cardel Hotels brand, opening six Florida locations before merging the company with Driftwood Hospitality Management in 2003.
Four Cardel Hotels remain, including in Doral and Tampa.
RE|source Miami checked in to get his view of Latin American buyers.
.jpg)
Q: Why are Latin Americans interested in investing in Miami’s hospitality market? What is the opportunity?
Rodriguez: Our investors come from everywhere, domestic and overseas — I like to say we’re a tiny United Nations — but Latin Americans do constitute about half of our investor network. That’s in part because that’s where my roots are, and simply because Miami has always attracted Latin American capital.
Miami’s condo market has been subsidized by Latin American wealth, but it’s more of a safe haven than a good investment. There’s an oversupply of luxury condos all competing with each other, so that’s driven down rents and the returns aren’t really there — condo investors are probably clearing only 2 percent. The yields in a well-operated hotel, by contrast, could be in the double digits.
Q: How did your investors see the hospitality market prior to the pandemic?
Rodriguez: Look at where we were just 10 months ago. Miami hotels broke records for revenue per room and average daily rate during Super Bowl LIV. South Florida’s hotel market is one of the top markets globally. Obviously, it will take time for tourism to recover, but it will, just like it did after 9/11.
In the meantime, downturns bring opportunity, and investors are clamoring to buy distressed hotels with the potential for outsized returns once the market rebounds. We’ve been ahead on this — Driftwood raised $250 million from investors in January for hotel acquisitions and development, and in October we launched a $60 million hotel lending fund to provide rescue capital to struggling hoteliers. So we’re well capitalized and closing deals — we recently acquired a hotel at a very steep discount in Pittsburgh, Pa., and provided a loan to a hotel in Washington, D.C.
Q: Where are investors coming from and what factors are influencing whether they buy?
Rodriguez: Historically, we’ve worked with investors from Venezuela, Colombia and Brazil. Now, with adverse political situations in Argentina, Chile and Mexico, a lot of capital is coming from those countries — more than ever, in fact. To give you an example, we’d never had an EB-5 investor from Chile; today we’re working with five of them.
This latest group of investors is also more sophisticated; they’re not your typical one or two condo investor. They have large quantities of capital, and they want to partner with experienced U.S. real estate players.
Q: You just opened a new hotel in Fort Lauderdale. Tell us about the challenges of opening a hotel amid a pandemic.
Rodriguez: The True by Hilton / Home2 Suites is a great example of our co-investment model and our strategy of identifying pockets of opportunity in growth markets. We saw that the hospitality boom was moving north from Miami into Broward and Palm Beach counties, and here was this piece of land — in an Opportunity Zone no less — in F.A.T Village. We raised $18 million from investors — about half from Brazil — and maintained our standard 10% stake.
Some construction cost ran over as a result of the pandemic, but we were able to achieve our goal of opening before the peak of the demand season, and we have a great rooftop bar and restaurant overlooking the downtown which will also drive revenue as the market recovers.
Tru is one of the fastest-growing brands in the Hilton family of brands, so we’re very confident that it will lead its competitive set once it’s stabilized.
Q. Do you plan on investing in or developing more hotels in South Florida in the future?
Rodriguez: Miami is a very saturated market — there have been a lot of new rooms delivered over the past several years — so we would have to see a specific pocket of opportunity here, but we’re always looking.
