South Florida Hotels Taking a Beating

MIAMI-Falling occupancy and revenue are making it tougher for current owners of South Florida hotels to stay open or stave off foreclosure. Local tourism executives are hoping for a better winter season to make up for summer’s losses.

Data from Hendersonville, TN-based Smith Travel Research shows that summertime room rates were the lowest in at least three years. Miami’s average daily room rates in July were $117 per night, while those in Fort Lauderdale and West Palm Beach-Boca Raton fell below the $100 mark.

Even though occupancy increased between June and July, discounted rooms have become a financial drag for many owners. Revenue per available room is adversely affected by the lower summer rates, though hoteliers may be able to make that up by customarily charging higher rates in winter.

“Miami hotels face tremendous pressure from competitive discounting and a potential breakdown in rate integrity,” Daniel Peek, senior managing director with Holliday Fenoglio Fowler in Coral Gables, stated in a fall research report. “This exacerbates RevPAR declines and is destructive to cash flows.”

Hoteliers may be able to realize a boost from increased tourism this winter, especially with Super Bowl XLIV being played at Land Shark Stadium in early February. Yet that isn’t enough to guarantee that owners with heavy debt on their properties might not lose them.

“We’re probably going to see a little bit of an uptick, but right now the operational numbers are pretty bad,” says Jack Lowell, vice president of Coral Gables-based Flagler Real Estate Services. He adds that hotel owners with a conservative capital structure will come through fine.

HFF Hotel Group notes in its report that more than 3,000 new rooms opened recently along Miami’s popular South Beach, including new hotels and expansions at longtime favorites. Meanwhile, the report points out that new and refreshed properties in Fort Lauderdale are creating regional competition, with its beach becoming a cheaper alternative for vacationers from Europe and Canada.

Peek notes an “AIG effect” on South Florida’s convention business, as corporations become more careful–and less extravagant–about scheduling meetings. “High-end group visitation has been reduced dramatically in the wake of highly publicized corporate retreats and boondoggles,” he says.

Sales of hotel properties remained flat through the summer, with many owners receiving less than what they originally paid. For example, the Doubletree Inn Coconut Grove was sold earlier this month for $13 million, nearly $1 million less than what it was purchased for in 1995.

“I don’t believe it will be a winter as bad as last winter, which was a total disaster,” says Stuart Blumberg, president and CEO of the Greater Miami and the Beaches Hotel Association. However, he cautions that room rates may not return to 2007 peak levels “for a minimum of three to four years.”

(Mike Seemuth of Daily Business Review, an ALM publication, contributed to this report.)