ORLANDO-In a hotel development surge unseen in modern annals here, at least six convention-designed resorts totaling about 7,522 luxury-class rooms are either at the planning boards or set to break ground this year at an estimated aggregate development cost of about $3.5 billion, according to new GlobeSt.com research. The estimated average development cost approaches a half-million dollars per room, a new high in new-room construction costs in Central Florida.
The newest player is a joint venture of Houston-based Rida Development Corp., Apollo Real Estate Advisors of New York and Hilton Hotel Corp. of Beverly Hills, CA. The JV plans to break ground by year end on Hilton Hotel Convention Center, a planned 18-story, 1,400-room property that will be built on 26 acres adjacent to the Orange County Convention Center. The development cost is $350 million or about $250,000 per room. The hotel is tentatively scheduled to open in 2009.
Only about 2,000 luxury-class rooms exist near the convention center, hospitality industry sources tell GlobeSt.com. Central Florida aggregately has about 116,000 hotel and motel rooms, and short-term rental properties. Myriad reasons are given by local government, industry and marketing sources for the rush to erect rooms that will rent for at least $300 a night.
However, the primary motivation for the new development is market share loss of international convention business by the City of Orlando and Orange County, sources in a position to know tell GlobeSt.com.
“Despite what the convention center people will try to show with their [rental] numbers, the center has been losing out to other major metro markets on a month-to-month usage basis because there just haven’t been enough quality hotel rooms around to house the big conventions,” a senior county official tells GlobeSt.com on condition of anonymity. Local private professional observers appear to back him up.
“Orlando people are just now truly understanding the lack of quality hotel rooms that are demanded by both the business convention travelers and tourists alike,” Todd F. Cohen, Florida director of Atlanta-based Primary Capital Advisors, tells Globest.com. “Other large convention cities, such as San Diego, Las Vegas, Miami, Atlanta and Chicago, have several thousand more quality hotel rooms than Orlando.”
More importantly, Cohen points out, “[hotel] developers are realizing the new urban Orlando, such as International Drive and Sand Lake Road, have very little attractive land available.” He says tourism attendance and revenue numbers are “back to levels that exceed pre 9/11 figures.”
Finally, Cohen says, “with room rates for these locations exceeding $300 per night, it sort of works for the condo-hotel investor who wants to use the room for a few weeks per year, and rent it via the management company and still get a half-way decent return.”
Terence J. Delahunty Jr., a partner with the Orlando law firm of Foley & Lardner LLP and a senior member of his firm’s real estate practice, tells GlobeSt.com he attributes the surge in new luxury hotel development to the industry’s “recent stagnation, caused in part by lack of capital and traditional lending sources, and as affected by 9/11.”
Delahunty says “there has been pent-up demand [for new luxury hotel rooms] that must be met.” He cites the record airport traffic and theme park attendance and “the general extraordinary population growth.” The lawyer notes “the increasing acceptance of hotel condos has provided a mechanism to provide financing options that wasn’t there in the past.”
Another factor Delahunty notes is that the physical growth of the convention center’s size alone to two million sf of exhibition and meeting space “has driven the need for higher-end business rooms in the I-Drive area.”
Robin L. Webb, director and managing broker of Coldwell Banker Commercial NRT’s Maitland, office, tells GlobeSt.com “two primary factors” have spurred recent development of luxury hotel rooms here, even though the majority of recently announced projects have been planned for years. Webb is a hospitality industry observer and participant for over 30 years. “Firstly, occupancies have continued to improve from the 2004 recovery levels through 2005…with average daily rates returning to the pre-Sept. 11, 2001 levels,” Webb says. “Secondly, “the fact that hotel financing is readily available in the market and at rates well below historic levels, is making new construction viable, in spite of increased construction costs.”
Hal Warren, senior director in the Orlando office of Cushman & Wakefield’s Apartment Brokerage Services division, tells GlobeSt.com condo hotels particularly “should take off because the investors are helping the developer with some of the upfront costs.” Warren says “usually, 20% to 25% is required at groundbreaking. It’s like having several hundred small equity partners.” The broker is confident “the six projects planned at or very near the Convention Center will be very well received.”
Besides the newest Hilton Orlando Convention Center hotel which will go up at a development cost of about $250,000 per room, new GlobeSt.com research finds the 1,300-room, $600-million Blue Rose Resort will cost about $461,538 per room; the 1,260-room, $800-million Palazzo del Lago will cost about $634,920 per room; the 1,332-room, $480-million Eden Springs Resort will cost about $360,360 per room; the $255-million, 1,000 luxury condos at Westin Imagine Orlando Residences will cost about $255,319 per unit; and the 1,500-room Rosen Shingle Creek Resort, the first luxury hotel to open this fall, will have an estimated development cost of $225 million or about $150,000 per room.
Besides new development, major hotel players are acquiring existing luxury hotels to compete for a share of the Convention Center trade, GlobeSt.com has previously reported. Orlando-based CNL Hotels & Resorts Inc. paid Annapolis, MD-based Thayer Lodging Group $753 million, or $475,979 per room, for the 584-room Ritz-Carlton and the 998-room JW Marriott Hotel. Another developer-investor, Diamond Rock Hospitality Co. of Bethesda, MD, paid Marriott International $70 million, or $144,032 per room, for the 486-room Orlando Airport Marriott.
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