(iStock / Illustration by Alison Bushor for The Real Deal)
T.HIt’s still dark at the Diplomat Beach Resort, a sprawling 1,000-room oceanfront hotel in South Florida.
More than a year after the pandemic began, conventions and business travelers – the lifeblood of such large properties – remain sparse. And cruises, which normally carry hoards of passengers in hotels, are still being halted.
While vacationers have come to South Florida in the past six months to hike hotel prices and increase occupancy, experts say the general recovery of the hotel market still depends on the return of conventions and cruises, as well as international travelers.
And the effects are many. The long interruption in business travel has led developers to postpone new conference hotel projects until funding is available and demand returns. At the same time, the hotels are trying to maintain staffing levels.
“The real recovery will not take full effect until the corporate, corporate and cruise industries return,” said Boaz Ashbel, executive director of Miami-based commercial real estate company Aztec Group. “And you still have to do it.”
Open to business
Florida’s lack of restrictions, no state income tax, beaches, and warm weather have fueled the immigration of wealth.
Visitors desperately looking for a Florida getaway also took advantage of it as soon as they could.
High-end hotels, particularly in Miami Beach and the Florida Keys, have benefited the most during the pandemic, much like luxury homes, brokers and analysts say. Developers are also driving ultra-luxury hotel projects, including To back up, Bulgarian and the recently launched condo hotel Waldorf Astoria.
“The luxury hotel segment has increased occupancy and prices to levels higher than in the first quarter” of 2020 compared to 2019, said Andrew Dickey, who leads hotel sales for JLL in Miami.
In the first quarter of this year, hotel occupancy in Miami and Fort Lauderdale was between 64 and 69 percent, according to the hotel research company STR. The average daily rate was over $ 220 in Miami and nearly $ 140 in Fort Lauderdale – about $ 50 less than last year in each market.
Compare this to the rest of the country, where first quarter occupancy averaged less than 50 percent and the average daily rate was close to $ 100, according to STR.
Investment sales are expected to increase this year, according to brokers. Investors raised billions of dollars to buy distressed businesses, but few South Florida hotels traded in 2020.
“There have been far fewer foreclosures than expected, far fewer foreclosures, but the past year has been really difficult,” said Suzanne Amaducci-Adams, partner at the Miami-based law firm Bilzin Sumberg. “We are blessed because we are a vacation destination.”
Dickey said he was working on half a billion dollar deals in South Florida that should be completed by the end of the second quarter, some of which could be sold for more than their pre-pandemic price. More resort owners in Florida drive-to markets can also secure new debt.
In March it became clear the restoration was much faster than originally expected, ”said Paul Weimer from the CBRE hotel group. Family offices, funds, and even real estate investment trusts are buying Florida hotels again, although some properties are still discounted.
The general outlook in South Florida is brighter than in other large metros like Chicago, New York and San Francisco. Additional lockdowns would be “devastating,” hotel owners said, but are not expected, especially in Florida, where the governor lifted remaining Covid restrictions in early May.
Scott Berman, director of PwC who leads the company’s hospitality and leisure practice, said Miami has “become a case study of how to recover.”
Abandoned conventions
But it’s not all good news.
Planned for the master Miami Worldcenter Development in downtown Miami, the schedule for the planned Marriott Marquis Hotel with 1,700 rooms and the 600,000 square meter convention center of the MDM Hotel Group is bleak. MDM acquired the site more than four years ago for $ 45 million.
The company said it was monitoring “the current realities of the meeting and convention industry” on a daily basis and the pandemic “forced us to get a grip on the development of the project”.
Construction of the David Martin and Jackie Soffer Grand Hyatt with 800 keys has yet to begin in Miami Beach. It was originally scheduled to open in 2023.
The pandemic has turned Brookfield Property Partners’ plans to sell the Hollywood diplomat for about $ 800 million. The sale to Jeffrey Soffers Fontainebleau Development fell apart in May last year as a result of the pandemic.
Big conventions won’t return until next year at the earliest, observers said.
“People will be much more careful and determined where they go,” said Amaducci-Adams.
Hotels and airports adjacent to the port also still have problems.
Cruise ships have not been in service in the US for over a year. They could return as early as mid-July, when most of the crew and passengers on a cruise ship are vaccinated by the time they reboot, the Centers for Disease Control and Prevention said, though Florida Governor Ron DeSantis’ ban on vaccination passports could be on major cruise lines to other states.
Aztec, a partner in Hyatt Place next to Miami International Airport, is starting to improve as more people travel by air.
“Right now, hotels are happy about any deal they can get” to pay property taxes, insurance and other monthly fixed expenses, Ashbel said, adding that it is misleading to rely solely on the surge in leisure demand.
I am waiting to pounce
Dedicated service technicians sell the notes for real estate in the United States, especially larger hotels that are dependent on group travel. This type of deal takes place behind the scenes and often doesn’t become public until a new lender takes ownership through foreclosure or the borrower eventually pays the debt.
“Instead of sealing off the mess and dealing with it, they’d rather sell the banknotes,” said Ashbel. “It happens every day of the week across the country.”
If borrowers are customers of a traditional bank, they are likely still working with their lenders, who in many cases have agreed to suspend capital payments, food, facility and equipment reserves while paying interest, property taxes and insurance.
“We still believe there will be a lot of stress,” said Ashbel.
Neil Shah, President of Hersha Hotels & Resorts, said that while conditions have improved for both hotel owners and their lenders, they are nowhere near where they used to be.
“Tired salespeople” lose millions of dollars a month just trying to take advantage of their next opportunity, “said Shah. Hersha, a Philadelphia-based real estate investment trust, sold hotels, including a Residence Inn by Marriott in Miami’s Coconut Grove, during the pandemic for $ 31 million. Shah said he looks forward to acquisitions in the second half of this year.
Buyers sat on the sidelines, ready to pounce.
Carlos Rodriguez, CEO of Driftwood Capital, based in Coral Gables, said Driftwood was “easy” to place hundreds of millions of dollars, but the growing number of buyers has pushed pricing to a point that no longer makes sense.
“Right now there is a lot of money to go after business,” said Rodriguez. “People are offering prices that I just don’t understand how to get the return on.”
Employees have options
In the meantime, bars, nightclubs, restaurants and hotels are facing a new challenge: attracting and retaining talent.
“Everyone says what keeps you up at night? I think if you are a hotel general manager stay up at night – where do I get the staff? “Amaducci-Adams said. “People pay a premium, but will the service be there and will that affect the long term?”
Ashbel called it a “massive problem”. Some hotel workers left the industry. Others don’t want to return for the same salary as they run the risk of contracting Covid at work while state aid is available to them. This is forcing the hotel operators to increase their hourly wages. International workers have also largely disappeared.
“It’s at the point where I speak to some people who have been in the industry for 15 years and have never had this problem before,” said Ashbel. “In many cases, people get the same or better wages through performance in order not to work.”
Some properties accept reservations based on planned staffing levels and 70 percent stop taking new bookings as owners and managers know they cannot properly serve guests.
Managers clean rooms, check guests in and out, and do other things “they’re not equipped for,” said Ashbel.
“It affects our service,” said Rodriguez of Driftwood. “Everyone’s running around like a headless chicken.”
Hersha’s Shah said it was now not uncommon not to occupy a hotel restaurant for three meals a day.
“There is not yet much motivation among potential employees to get back to work,” he said. “That’ll be better by September.”
Hoteliers hope that business travel will see a lasting upswing in the fall. Anything later than that “would be disappointing” and would require changes in strategy, Shah said. He and others are encouraged by recent bookings for small weddings and meetings.
Weekend occupancy is increasing in major cities across the country, including Miami 60 percent, but that falls into the 20 percent range during the week, according to Shah.
“That is the next big concern,” said Shah. “When are business trips returning and when do conferences start?”
