MIAMI—The shores of South Beach are heating up, and hotel investors are taking notice.
The Florida hot spot, along with the rest of Miami, has played host to a number of high-profile hotel headlines in the past month, including the opening of the St. Regis Bal Harbour Resort & Residences and the sale of the long-dormant Ganesvoort.
The St. Regis is a luxury mixed-use property with 243 guestrooms that was developed and is owned by Starwood Hotels & Resorts Worldwide. The Ganesevoort, also a mixed-use property, sat in foreclosure since 2010 and was acquired 1 February by a consortium consisting of Starwood Capital Group, the LeFrak Organization and Invesco Limited.
The January developments come on the heels of a relatively active 2011, during which seven hotels traded hands, according to STR Analytics, sister company of the Hotel Investment Barometer. The deals include:
• the 409-room Royal Palm, which KSL Capital Partners LLC acquired from Sunstone Hotel Investors for US$130 million or approximately US$318,000 a key;
• the Continental South Beach, which InSite Group and Cube formed a joint venture to acquire the US$61 million property;
• the 148-room Viceroy Miami, which Pebblebrook Hotel Trust acquired for US$36.5 million;
• the Coconut Grove, which Terra Grove Communities acquired from an affiliate of Spanish bank Novacaixagalicia for US$24 million;
• the Savoy, which Allied Partners acquired in July;
• the Continental Bayside, which InSite Group and affiliates of The Carlyle Group acquired from Ian Schrager Hotels and RFR Holding for US$13.5 million; and
• the Courtyard Miami Beach Oceanfront, which Hersha Hospitality Trust acquired from Economos Properties for US$95 million.
Included in Hersha’s acquisition of the Courtyard was an adjacent land parcel that has received approval for the construction of an additional 93-room oceanfront tower, additional meeting space and structured parking, according to a release. The Philadelphia-based REIT plans to commence construction of this tower in 2012 and anticipates that the construction would be completed in late 2013 with an estimated cost of US$200,000 per room.
The purchase price represents a forward capitalization rate of more than 7.6% on the hotel’s projected 2012 NOI, with the asset stabilizing at more than 10%. The acquisition is anticipated to be funded by assuming US$30.7 million of existing debt, cash on hand and borrowings drawn on Hersha’s line of credit. The REIT expects to refinance the first mortgage loan in June 2012.
The consortium led by Starwood Capital Trust for Miami’s most recent transaction wasn’t as transparent surrounding its acquisition of the Gansevoort. The group is planning to invest more than US$100 million in an extensive renovation of the overall property while repositioning it as one of the premier hotel and condo designations in Miami Beach, according to a release. The 334-room hotel will be renamed The Perry South Beach until it is relaunched in late 2013 with a new brand after an extensive renovation.
The price of the acquisition was not disclosed, and property records had not been updated by the Miami-Dade County Assessor as of press time. The property had an assessed value of US$49 million in 2011; its assessed value in 2010 was US$51.6 million, according to the most recent assessor records.
A hot market
The warm weather (and subsequent leisure base) isn’t the only thing piquing investor interest in Miami. The city’s hotel market fundamentals were strong throughout 2011, ending the year with fourth-quarter increases of 10.7% and 17.6% in average daily rate and revenue per available room, respectively, according to STR, parent of the Hotel Investment Barometer.
The city also saw a carry-on effect of South America’s relatively strong hotel performance, said Stephen Taylor, VP of broker Hunter Hotels’ Miami office.
“Miami is a capital of South America, and South American markets are doing very well,” he said.
South America finished 2011 with an ADR increase of 16.5% and a RevPAR increase of 19.5% in U.S. dollar terms, according to STR Global, sister company of the Hotel Investment Barometer.
“There’s a lot of attraction to Miami,” Taylor said. “A lot of South American investors are trying to get their money out of places like Mexico, Venezuela, Argentina.”
All of that interest hasn’t necessarily equated to deals just yet, he added. Many buyers either don’t have the cash on hand to make a purchase or can’t get the financing. And on the other side of the table, many owners are still holding onto assets waiting until the market becomes more liquid.
“It’s a two-way street,” Taylor said. “They want it liquid so they can sell and liquid so they can buy again, so they can move up to (a higher chain scale).”
When that time comes is hard to guess, he said.
“You have to be at the right place at the right time and have your finger on the pulse of when things are going to happen,” Taylor said. “Right now, this first quarter we’re seeing that it’s very slow, but we anticipate that transactions will start building into the second quarter. And beyond that, I’m not sure.”