Hotel industry economic indicators point toward a rebound in the beleaguered markets from Naples to Tampa. That bodes well for hotel acquisition opportunities and new development.
By David R. Corder
Chris Schaeffer is busy and the ink is barely dry. The chief financial officer at Coral Beach Club Co. LLC oversees the accounting of a new hotel-acquisition strategy flush with a $350 million line of credit. The hunt is on at the Naples-based hospitality management and investment company.
"There are so many distressed properties because of 9-11, both in the hotel and club business, that need financial and managerial assistance," Schaeffer says. "Because of this, the principals of many of the holdings in Coral Beach have decided that this partnership would be beneficial in this business climate."
The company's financing agreement with Cypress Lending Group Ltd., the lending arm of Dallas-based EFO Holdings LP, attests to a recent surge in hotel-acquisition activity particularly throughout the 10-county Gulf Coast region. It's a trend that apparently shows no sign of weakening.
"Florida's West Coast is a vibrant and growing region from an economic standpoint, which corresponds to strong demand for lodging," says Daniel C. Peek, vice president at The Plasencia Group, a Tampa-based hospitality transaction and consulting service. "Most markets have no place to go but up, but Florida's West Coast market has the wherewithal to move in that direction."
It is such a vibrant climate The Plasencia Group expects to close on three to five more transactions over the next six months in Florida, says Peek, who wouldn't disclose specifics. Over the past 18 months, the firm's associates closed nationally on about $1.2 billion in hotel transactions. About 15% of that occurred in Florida.
In the Gulf Coast region, the Tampa firm represented buyers and sellers over the past few months in the following transactions:
ï¿½ Hilton Garden Inn, 95 rooms in Ybor City, $12.25 million - or $128,947 a room. "That's the highest per key price in the city of Tampa since 1996," Peek says. "It's a high-performing, very high-quality asset."
ï¿½ Radisson Marco Island, 270 rooms, $27.25 million - or $100,925 a room.
ï¿½ Holiday Inn Lido Beach and Holiday Inn Longboat Key, a packaged deal with a total of 240 rooms, $29 million - or $120,833 a room.
ï¿½ Ramada Inn Gulfview, 296 rooms in Clearwater, $12.9 million - or $43,581 a room.
This wave of acquisition activity comes as the lodging and hospitality industry slowly regains strength following the disastrous effects of the Sept. 11, 2001, terrorist attacks on America. The traveling public - especially well-heeled vacationers and the all-important business traveler - dwindled at the nation's airports.
"Orlando suffered the most in Florida," Peek says. "Tampa and Miami fared better performance-wise."
Two years later, however, key hotel economic indicators - occupancy, average daily room rates and revenue per available room (PAR) - are showing noticeable improvements throughout the nation, Florida and in most markets in the Gulf Cost region. (See accompanying chart.)
Revenue per room and room occupancy is up for the seven-month period ended July 31 in Fort Myers, Naples and Tampa-St. Petersburg-Clearwater metropolitan statistical areas, according to Smith Travel Research, a Tennessee-based research firm that tracks the U.S. hospitality industry.
"Florida as a state is up year to date (in terms of occupancy, ADR and RevPAR)," Peek says. "Tampa is performing similar to the state. Orlando has remained soft. Miami is performing similar to the state and the Tampa Bay area."
The occupancy rate in the Florida markets may seem low at a range of 65.8% in the Fort Myers market and 63.1% in the Bradenton-Longboat Key market. But that's just not true, says Jan Freitag, a Smith Travel Research director. "It's not low at all."
The Florida markets compare to a national occupancy rate of 59.8% for the seven months ended July 31. All of those figures compare with national annual rates of 62.3% in 2000, 62.9% in 1999 and 63.4% in 1998. The same trend holds true for revenue per room, a particularly key indicator for hotel owners and developers. "We did a presentation in the office the other day," Freitag says. "Of the top 10 markets, in terms of RevPAR, eight of them are in Florida."
On the other hand, occupancy, ADR and RevPAR for the year to date are down in the Sarasota and Bradenton-Longboat Key markets. Freitag suspects the decrease in the Longboat Key market may be an indication of a relative new trend in hotel bookings - tech-savvy leisure travelers, who rely on Internet services such as Priceline.com or Hotels.com to find cheapest available rates.
"Customers are looking for what's hot, for what's cheap," Freitag says. "The Internet has eroded pricing quite substantially in some markets for some hotel types. Nobody books in advance any more. They wait for the price to drop. There's just not the pricing power after Sept. 11 to get them back into the door."
In terms of development, Freitag says developers are particularly interested in break-even occupancy rates. "Break-even occupancy (nationally), which has been dropping over the past 10 years or so is way below 60%. It needs to be in the 60% to 70% range as a general industry rule of thumb. If you look historically, with a broad brush, when development hits, it hits that upper benchmark."
That is the type of indicator that bolsters a plan by WPM Construction LLC, an affiliate of Merrillville, Ind.-based Whiteco Industries Inc., to take something of a risk in the Tampa Bay area market. It plans to build a 400-room, upper-end all-suite hotel across from the Tampa Convention Center. If successful, WPM would add the first new block of rooms in downtown Tampa since completion of the 717-room Marriott Waterside Hotel and Marina about three years ago.
"We're market-driven," says Richard Parks, vice president of WPM, a company that has developed about 100 hotels throughout the nation. "The hotels, at least similar hotels in the marketplace, all show good trends. Rates and occupancies are above the national averages. In the case of the convention center, the room block doesn't adequately serve the square footage. We look at that as a great opportunity."
But Parks says the company also looked at more than just the basic hotel industry indicators. "Predominantly, Tampa is a well-run city," he says. "Tampa on the whole is showing net absorption in terms of office space. It's a city that's recovering well, and it's on the leading edge in Florida."
Yet, there still are the more cautious developer-investors such as Anthony Menna, president of Clearwater-based Menna Development & Management Inc. "I used to look actively all around to find opportunities," he says. "I've made offers as far south as Naples. Prior to 9-11 I even looked at the Fort Myers market. But the whole philosophy has changed. The whole climate has changed in the hotel industry."
For instance, Menna says, hotels owners and managers take a much more conservative approach when booking rooms. "They're much more cautious," he says. "Booking windows have gotten much smaller. It used to be six months out. Now it's a relatively much shorter term."
Nevertheless, Menna expressed optimism about the hotel industry's outlook throughout the Gulf Coast region. "Over the last couple of months, things are loosening up," he says. "I'm seeing more properties coming on the market. It even looks like, from an operational standpoint, that 2004 may have some positive notes to it. All the projections are showing a rebound."
But that doesn't mean Menna is rushing to expand his portfolio. He has returned to his roots in commercial development as a means to survive the softness in the hotel market. "I am looking at acquisitions, but I'm more diversified," he says. "I'm looking at residential, condos and townhomes on the waterfront. In the late '90s, I was focusing on hotels, acquisitions and operations."
The opportunities for hotel development in the Naples-Fort Myers, Sarasota-Bradenton market are limited, says William A. Crow, an analyst who tracks the lodging industry for St. Petersburg-based Raymond James & Associates. For instance, he says, those markets have yet to absorb room supply created by the 416-room Ritz Carlton golf resort in Naples, the 454-room Hyatt Regency Coconut Point in Bonita Springs and the 266-room Ritz Carlton Hotel in Sarasota. "They've weakened the overall market," he says. "It will take a couple of years to work its way through the system."
Besides basic supply-and-demand issues, Crow says financing still remains the biggest challenge for any new hotel development in the Gulf Coast region. "It's very difficult to get financing for new construction," he says. "Lenders stepped back, starting in 1999. If you look at supply growth then it was in excess of 4%. Today it's about a 1.3% annual supply growth. So it's come down considerably since 1999."
Such hesitancy among the lenders is one of the biggest factors why Crow expects hotel acquisition activity to continue at its current pace.
"You may see hotels change flags, redeveloped and upgraded," he says. "It's very difficult and expensive to build a new waterfront hotel. Most of the new supply, and this certainly is true in Florida and the rest of the country, is going to be focused on more suburban locations, with more moderate price points - the mid-scale hotel that does not necessarily feature food and beverage."
The forecasted increase in suburban, interstate highway or corporate office park hotels also is more of a function of land price and availability, especially waterfront land, says Daniel Peek. "Land is tied up and many hotel uses are being eliminated from the market because of condominium conversions," he says. "The opportunities (along the waterfront) are minimal. It's very difficult, and in some places impossible, to develop new waterfront hotels in Florida."
But The Plasencia Group research found good indications that inland hotel development may be on the increase.
In the Tampa-St. Petersburg-Clearwater metropolitan statistical area, for instance, Peek says, the research forecasts the development of 1,000 to 1,500 new hotels rooms over the next three years. "I think the market has done better than most over the past 36 months," he says. "As a result it's becoming a more significant player on the national stage."
As for Sarasota and Manatee counties, Peeks says the research suggests the hotel market is in a moderate-to-advanced stage of recovery. "The story in Sarasota-Manatee is its economic growth, population growth and it's 'Old Florida' appeal," he says. "Most of the challenge is that several beachfront hotels will be removed for condo conversions, such as the Holiday Inn Longboat Key and the Half Moon Club in Sarasota. But we should see the addition of 300 to 400 select-service rooms along the interstate and at corporation locations."
The same is true for hotel development in the Naples and Fort Myers' markets, Peek says. "We see mostly corporate and interstate hotel development, but we do expect that the Southwest Florida resort market will rebound within the next 24 months in terms of performance," he says.
Gulf Coast Region
MarketOccupancy% changeADR% changeRevPAR% change
* Includes Miami-Hialeah, Orlando and national indicators for comparative purposes.
Note: Calendar year to date ended July 31; percentage change compared with same period a year ago. ADR = average daily rate. RevPAR = revenue per available room. Source: Smith Travel Research